WEBVTT
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Welcome back to higher expands.
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Number one independent cannabis investment.
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We break down complex cannabis markets.
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Career hosts.
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Just redmond.
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Work them back.
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Welcome back indeed.
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I am Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands, and I'm back with the very tan, the very grizzled veteran.
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His name is Morgan Paxia.
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Morgan, how are you, man?
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Morgan, can you hear me?
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I'm doing great.
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It's a hot, steamy summer in America right now, but we're doing great.
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Yeah.
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And I'm really excited to hear you have can you hear me?
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I can hear you, Morgan.
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I wanted to throw it over to our guest.
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We're really happy to have Dan Ahrens, manager director and chief investment officer at Advisor Shares.
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Dan, I appreciate you taking the time.
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Thanks, Jesse.
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Happy to be here.
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And hello, Morgan, uh long-term friend.
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Um and who might want to reboot because he seems to be on a nasty uh lag behind us right now.
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Are you okay there, Morgan?
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Or are you uh are you lagging?
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I'm gonna send my buddy Morgan a text.
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I'm gonna send my buddy Morgan a text and uh just tell him the robots right now.
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Sure.
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Morgan, if you can hear me, why don't you uh exit and come back in or do something?
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Because it seems like you're on a pretty good lag there.
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Sorry, guys, just texting Morgan to exit and come back.
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But we do that, Dan.
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Let's let Morgan work out the kinks, as we say, in the industry.
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You are a fascinating guy, Dan.
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You have a lot of stuff going on over at VisorShares, and you have an interesting background as well.
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So why don't you tell us a bit about who you are and uh what you're up to over there at the Advisor Shares complex?
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Sure.
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Well, I think a lot of people that follow cannabis closely, at least, might uh know.
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But um, you know, I've been managing ETFs for 15 something years, and I managed mutual funds before that.
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And um, you know, back when we first founded Advisor Shares uh along with Noah Hammond, uh who's his baby, um, he hired me and thought at some point, you know, we might need to do a Vice-themed ETF because I had founded this thing a long time ago called the Vice Fund, Mutual Fund that had a alcohol and tobacco and gambling and all that good stuff back before anybody ever imagined investing in in cannabis.
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And um, you know, you move forward a number of years.
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We had a uh a number of other uh active ETFs going.
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We had we're the we have the uh one of the very first active managed exemptive reliefs for ETFs.
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So we're kind of the longest tenured active ETF uh shop.
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And active doesn't mean overly active, it doesn't mean tactical.
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A lot of people need to understand this.
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It simply means it's not an index.
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And um, I'll skip ahead to cannabis investing.
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You don't want an index that forces rebalances every month or every quarter.
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You want an actively managed cannabis ETF, even if active means you're being inactive, you're not forcing rebalances.
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Active means uh you're simply not following an index, and you probably don't want to upset the Apple cart.
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But I digress.
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Uh, Advisor Shares has 17 funds.
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We have a number of different portfolio managers and some subadvisors of some of those funds.
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And a number of years ago, um, people started looking at cannabis investing.
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I said, no, that's probably not gonna work.
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There's not enough to invest in, it's not liquid enough.
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It progressed though, it progressed a little bit.
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So we were one of the very first applicants to the SEC for um a cannabis ETF.
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They asked us to get legal opinions.
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Um, we went to a third-party legal firm, it's not our regular council.
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We went to people that had specialties in investment companies and cannabis and got legal opinions.
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And um, then we got another legal opinion that invests about investing in cannabis and investing with total return swaps.
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We were the first company to do that in the cannabis space because that's the only darn way that you could invest in US plant-touching cannabis companies.
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So we invented that.
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Uh, now there's billions and billions, if not trillions, of dollars in in uh mutual funds and ETFs using uh total return swaps for other purposes.
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We only invented the part of using it as a substitute for investing directly in cannabis stocks.
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Um a lot of other cannabis funds have come and gone in that time.
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And we started off with our fund YOLO, which is now a global strategy, and then we uh about a year later invented uh MSOS as a US only strategy, and it happens to be by far, by far, the largest and most liquid uh cannabis ETF in uh in existence, floating somewhere around a billion dollars.
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And how big how big is YOLO, Dan?
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YOLO's uh under$50 million.
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It's it's a I don't know,$35,$40 million in assets, which is sizable for a cannabis ETF, but uh much, much smaller than um MSOS or MSOs, if you want to call it that.
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Uh because I think it just shows how many investors, how many people think that the opportunity, the opportunity that we're still, still waiting for is on the US side of the border rather than the more the global global reach strategy.
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Yeah, that's interesting.
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MSO or YOLO was first in a broader strategy with more diversification, which typically would you think earlier launch, broader mandate, typically more AUM.
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But in this case, people have honed in on that MSO opportunity as the one they want to target.
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Usually, and also uh performance.
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Um, you know, there's a lot of different time frames that anybody can look at, but for a large part of it is its existence, the Fun Yolo was the top performing cannabis ETF in existence.
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Again, various time frames.
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And um, that's really flipped in the past year once uh we got the executive order from Trump.
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Um, cannabis stocks US side really took a big pop uh in the fall with a great deal of volatility.
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Don't want to forget that.
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Um, but uh it's certainly cooled off and got stagnant in this calendar year.
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But uh MSO's has outperformed its sister fund, if you want to call it that, YOLO, um, more recently.
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Yeah.
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Well, Morgan continues working at the Kinks.
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Why don't I jump in and tell you about a little bit about one of about our great partner at FlowHub and thank them for the continued support of higher exchanges?
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They recently launched their 2020-2026 state of AI and cannabis retail report.
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And one statistic really jumped out to us.
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Nearly 50% of cannabis retailers are already using AI in some part of their business.
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Think about that for a second.
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Two dispensaries on the same street, same product, same taxes.
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One is leveraging AI to streamline streamline operations, with the other is relying on late nights and manual processes.
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Over time, that's a competitive advantage that's only going to widen.
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That's just one of the insights of the report.
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Head over to FlowHub.com, check out the state of AI and cannabis retail 2026, full of interesting data.
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I loved it, tons of practical insights.
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Check it out, Flowhub.com.
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Thank you for your support.
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So, Dan, let's talk a little bit more about the specifics of the funds.
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Um, you know, I'm I always start out saying, like, what's the opportunity set right here?
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Like, what can we do?
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What's the investable universe?
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To me, that's the first question in due diligence is where are you guys fishing?
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What pond are you in?
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So, Dan, help me understand what qualifies a company for MSOS and YOLO.
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Are there any hard criteria their investors should know?
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Well, uh again, YOLO was the first uh fund in existence be well before MSOs.
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And um it's interesting when we first filed a prospectus um with the SEC and we're speaking to the New York Stock Exchange, which is our listing venue for this fund, and talking to BNY, formerly known as BNY Mellon, uh, about custody and settling trades and so on.
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It set off a lot of bells.
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People had big concerns.
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How the heck can you invest in cannabis?
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And um that's even after Canada, or around the same time they legalized and these Canadian companies were able to listen to some of the exchanges, but it still set off all kinds of bells.
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So, for your criteria, we're not talking about a typical fund where our criteria is market cap, liquidity, size, cash flows, uh, you know, all this fundamental analysis you can do on a stock and writing a prospectus about what are the principal investment strategies, what are the constraints.
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No, the exchange, the New York Stock Exchange, and the bank were only concerned with what is legal and what they can custody.
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And we had to do a lot of negotiation with them.
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And as I said, we uh had to the SEC says, nope, you need to get a third-party legal opinion on this thing and supply it to us.
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And everybody came down to the same criteria.
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The stock better be listed on NICE or listed on Nasdaq or listed on the Toronto or even the Toronto venture.
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Later they expanded that to Australia for the small handful of stocks that that makes a difference for.
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Very small group.
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And it's interesting, Jesse, that in the years that followed, virtually all of the big wirehouses and banks and brokerages came out with formal cannabis policies that very much mirrored that same set of policy constraints.
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Um, if you aren't listed on Nasdaq, NYSE, NYC, or you know, the Toronto, you are blocked throughout BNY Mellon.
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Um same thing happened to Cowan, who used to be very big in the cannabis space and got acquired by TD Bank.
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And again, whether the constraints are behind the scenes or in front of the scenes, the the same thing goes for all the big bank wirehouses like B of A Merrill and Morgan Stanley Chase and JP Morgan and everybody else.
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So um the criteria you got to be listed on those exchanges.
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Then it's a pretty darn small universe of stocks that are listed on those exchanges and have even workable price, liquidity, trading volume.
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Um, and that's a small universe of stocks.
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Then we don't want the fund to be a market cap weighted index, and uh we're actively managed, even though we're not very actively managed.
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Um as a portfolio manager, we use a lot of outside information and get decide what we want to invest in.
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Simple as that.
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But it's really evolved over the last five years, as you guys can imagine.
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And does uplisting change that investable universe, Dan?
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100%.
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Yes, it does.
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Uplisting is a beautiful thing.
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But you know, the the three of us guy discussed that a little bit because it is a monumental, monumental occasion when TrueLeave got listed on the New York Stock Exchange.
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I mean, kudos to them.
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I mean, great job.
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But you guys and everybody else probably noticed they were pretty silent before that happened.
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There were some rumors out there, people thought there, I think that might be happening.
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I think there's discussions happening.
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But I think uh Kim Rivers and Christine and team, you know, didn't want to upset the Apple cart.
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They were treading very lightly, they wanted to uh see it to fruition.
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So what they did is they got listed on the New York Stock Exchange.
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Then they got in front of all the big investment firms in New York.
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And I I know they had the I know they've been having these meetings and uh because we talked to all those same people, but they didn't really get to go on a roadshow before the up listing.
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And then, hey, um, you know, Glasshouse followed just, you know, a week or two later with their listing.
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Uh again, a great thing.
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And it's frustrating as hell that the marketplace doesn't seem to really care.
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Yeah, I mean, we all know that it's a huge, huge occasion, but the outside market doesn't care.
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And we need to come back and talk about it, it goes to the state of cannabis overall.
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But in my fund, it is a wonderful thing, Jesse and Morgan, that I owned very large amounts of True Leave and very large amounts of Glasshouse, and I held it with four, count them four different swap counterparties.
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Yeah, um, registered with the SEC as security-based swap dealers and big firms, but I still had to spread out all that exposure because those firms don't want to own 10 or 15% of a company, any company.
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They don't want to own too much of True Leave or Glasshouse.
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I'm also spreading out my counterparty risk.
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I'm also, you know, juggling fees and capacity between all those firms, all sorts of things.
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So I got to take a very large amount of what I held via total return swap of True Leave and um turn it into stock.
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It's not much more complicated than that.
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I uh I sell swap, I buy stock at the same price at the same closing price.
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So I'm not uh upsetting the stock price.
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I'm not putting pressure on the bid and pressure on the ask to move tens of millions of dollars.
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I'm simply uh, you know, it's funny because some people say, do they really own the stock?
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Well, yeah, of course they own the stock.
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So at a swap counterparty, they own the stock to cover their backside over the swap that they're giving us.
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And I simply um sold the swap, bought the stock from them, had it settled to the the fund custody at BNY Mellon, and um that lowers costs, it uh improves you know ease and uh tax efficiency of the fund, all sorts of things.
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So uh did I did I move it all to stock?
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No, because the fund is so top heavy, so concentrated in its top five holdings that I own those positions directly via stock, and I still own them via total return swap.
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A lot of answer there for you.
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No, it's good.
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No, I think it's an important conversation.
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Welcome back, Morgan, in case you hear his voice again.
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Morgan, I'll keep cruising on the agenda until I get to position sizing and loop you back in.
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But feel free to jump in along the way.
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But I think we're having a valuable, nerdy conversation here, and I think that the you know, a lot of people, because we have a very nerdy audience in a good way.
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Um, I think a lot of folks will understand this.
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But just to be clear, what Dan's talking about is he wants to have a New York stock exchange listed vehicle because it attracts more investors, will have more liquidity, but he can't do that owning these cannabis names in a normal long fashion when they're on the OTC.
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And so what Dan is doing is he's they've done some financial engineering, which is rather clever, which is going through what they call a total return swap in order to get that exposure.
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So just to make sure everybody understands it, you bet you have MSOS over here, you'll have a counterparty in the middle.
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I'm gonna use Goldman Sachs, super blue chip, triple A rating, I think.
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And and then over here, you have the actual stock.
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So in the case of what Dan is doing, MSOS goes to Goldman Sachs.
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So my hypothetical example, Goldman Sachs issues a total returns drop swap in the amount of the exposure they have to the position.
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So let's say in this example, GTI is over here to the tune of$10 million.
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You don't actually own GTI in this case.
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Dan, correct me if I can do this wrong.
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You own the total return swap with Goldman Sachs.
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Goldman Sachs theoretically covers that position by owning the long position of the stock.
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They return to you the performance of GTI minus the cost of the total return swap, which we can get into later.
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And that's what your end return is.
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So it's a little bit of clever financial engineering, but it has two, in my opinion, risks or downside for all the benefits.
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One is that you have the cost, which we can get into later.
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And then number two, which I don't want to, you know, uh, you know, steal too much from the agenda, is you do have that counterparty risk, which I think is an important thing to understand.
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Did I get that mostly right, Dan?
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Yeah, very much right.
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And you know, you said we're uh, you know, being nerdy on this, but I really want people to understand what the fund does, what the fund is, how the fund works.
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So it's important to understand this.
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100%.
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Um a little while ago, I just got off a uh a webinar we were doing for a group of investment advisors.
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And one of the questions was well, do institutions use total return swaps?
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Are total return swaps common?
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Yeah, very common.
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There's trillions of dollars used in total return swaps, and it's public information that you guys can look up uh who are registered security-based swap dealers.
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Um, that's uh SEC law that changed, or rules, excuse me, not law that changed a few years ago.
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And yeah, Goldman Sachs and all that every other large wirehouse and um underwriter is uh a security-based swap dealer.
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So um, yeah, the bottom line is when we talked to the New York Stock Exchange, when we talked to the Bank of New York Mellon, I wanted to have an investment company, ETF, same as a mutual fund.
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We cannot buy and settle and custody GTI stock simply because it's listed on a secondary exchange in Canada.
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It's only traded OTC in the US, and it is on their formal cannabis policy.
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That's a blocked stock.
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For now, I think that's all changing.
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We'll talk more about that in the future, but for now, GTI is um a blocked stock, it is not allowed to be custodied at Bank of New York Mellon.
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So we use a total return swap.
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And some people say, Well, how does the fund price it?
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Well, I'm looking at my screen right now.
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GTBIF is exactly$7.
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It's$699 bid by 700 ask.
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If it ends the day like that, that is how the fund prices GTI, exactly as if we owned 24 million shares and change of GTI, which the fund does.
00:19:58.799 --> 00:20:04.559
Um, the G the total return swap is exactly as we as if we own the stock.
00:20:04.720 --> 00:20:07.839
Now, there are trillions of dollars in other funds.
00:20:08.079 --> 00:20:12.559
Thousands of funds use total return swaps, or usually use them for other reasons, though.
00:20:12.640 --> 00:20:14.240
They're usually using them for leverage.
00:20:14.400 --> 00:20:14.799
Yes.
00:20:14.960 --> 00:20:21.440
Um, um, two times funds, inverse funds, all kinds of exotic things, basket swaps.
00:20:21.759 --> 00:20:32.160
We're the people that invented using those swaps exactly on a one-for-one basis, as if we owned that cannabis company directly.
00:20:32.400 --> 00:20:45.920
Nothing more, nothing fancy, not leveraged, not exotic, just a way to hold 24 million shares of GTI indirectly through those counterparties that you mentioned.
00:20:46.160 --> 00:20:46.559
Yeah.
00:20:46.799 --> 00:20:48.079
No, it's clever engineering.
00:20:48.160 --> 00:20:50.559
I used to hit the nail on the head there, Dan.
00:20:50.640 --> 00:20:52.720
I used to run a leveraged uh fund of hedge funds.
00:20:52.799 --> 00:20:53.359
And that's what we did.
00:20:53.519 --> 00:20:57.920
We used two to one leverage and we used a total return swap with Goldman and Credit Suisse to accomplish that.
00:20:58.160 --> 00:21:00.160
And that was back in 2005.
00:21:00.319 --> 00:21:01.680
And so it's more common.
00:21:01.920 --> 00:21:05.119
Yeah, it's kind of cool to see it 20 years later, you know, engineered in this way.
00:21:05.279 --> 00:21:12.079
But let's move ahead and talk a little bit about what I think maybe all the stuff matters, but what really matters to me is the stock selection process.
00:21:12.240 --> 00:21:17.599
Like, how do you, you know, I think people are curious, you know, how would you end up with the position positions that you do?
00:21:17.759 --> 00:21:19.440
Like, what do you look for in companies, Dan?
00:21:19.599 --> 00:21:26.079
When you're looking across, let's just take MSOS, you know, because I think that's the bulk of the bulk of the assets and makes the conversation a little bit easier.
00:21:26.160 --> 00:21:30.559
But when you're looking at that investable universe, where do you start and what are you looking for in these companies?
00:21:31.039 --> 00:21:34.640
Well, that investable universe is very limited.
00:21:34.720 --> 00:21:36.960
It's a limited universe of stocks.
00:21:37.200 --> 00:21:53.759
And as these funds have evolved, um, you know, the fund MSOS, Advisor Shares Pure US Cannabis ETF, has a mandate to invest primarily in US cannabis related companies.
00:21:54.079 --> 00:21:59.839
Now, at one point we we held some of the the REITs, we held some of the ancillary companies.
00:22:00.319 --> 00:22:02.400
So we had some other stuff.
00:22:02.640 --> 00:22:17.200
I really quickly learned that your average investor or advisor wanted this company, this fund, excuse me, to actually hold what its ticker implies, MSOs.
00:22:17.839 --> 00:22:25.440
So I thought, you know, if that's what people really want and are investing in this thing, that's what we should give them.
00:22:25.759 --> 00:22:28.480
So I made a portfolio manager decision.
00:22:28.640 --> 00:22:36.960
Even though we could hold ancillary companies, we could hold the REITs, I wanted this MSOs fund to be pretty pure multi-state operators.
00:22:37.200 --> 00:22:47.039
Well, now, Jesse and Morgan, you know, that's a pretty darn limited universe of not only who they are and what they are, they're publicly traded.
00:22:47.119 --> 00:22:48.480
Can I even invest in them?
00:22:48.640 --> 00:22:51.200
But which ones are large enough and liquid enough?
00:22:51.519 --> 00:23:11.680
So um there's been changes over the last couple of years, but gosh, Cure Leaf, TrueLeaf, and GTI are now pretty far and away the largest, most liquid, um, you know, most expected, if you will, which still matters, uh, tier one companies.
00:23:11.759 --> 00:23:13.599
So those are the top three holdings.
00:23:13.839 --> 00:23:18.160
But um, Glasshouse is now the number four holding.
00:23:18.319 --> 00:23:26.079
Um, and that's partially through position sizing by me and partially just by appreciation.
00:23:26.400 --> 00:23:29.680
You know, stock A goes up more than stock B.
00:23:29.759 --> 00:23:34.000
It's now a heavy more heavily weighted port uh position in the portfolio.
00:23:34.480 --> 00:23:43.039
And with this fund, I've said over and over again, we don't want to be very active.
00:23:43.599 --> 00:23:58.480
I don't think anybody really wants me pounding the heck out of the bid or the ask on any of these stocks right now, um, as we are waiting on federal reforms to hopefully make these uh volumes go up and make these things heavily traded.
00:23:58.640 --> 00:24:13.279
So if I see a stock like Glasshouse through appreciation, through stock performance turning into a heavier weighted position in my fund than Verano or Cresco Labs, I've let it ride.
00:24:14.000 --> 00:24:15.279
Does that make sense?
00:24:15.599 --> 00:24:16.240
It does.
00:24:16.480 --> 00:24:25.039
And so, like amongst those top few names, Dan, like how how do you arrive at curely, for example, being a bigger weighting than GTI and truly?
00:24:25.200 --> 00:24:28.240
Like, what do you like about that business that justifies the waiting?
00:24:28.880 --> 00:24:29.359
Yep.
00:24:29.599 --> 00:24:39.200
And that's where you again you get into what is an actively managed fund and what is an index fund, and so on, because that's a very common question, Jesse, and I appreciate it.
00:24:39.519 --> 00:24:46.319
And it's partially portfolio manager preference, and again, it's partially appreciation.
00:24:46.960 --> 00:25:06.400
So there are index funds out there, and there was an index fund in um in cannabis land that was really pissing people off a couple of years ago doing their quarterly rebalances and um really upsetting the Apple cart, uh, rebalancing pretty illiquid stocks.
00:25:06.640 --> 00:25:08.640
So that's one we don't want to do.
00:25:08.960 --> 00:25:14.640
Two, as an investor, um, everybody has a brokerage account.
00:25:14.960 --> 00:25:16.240
Pull up a darn chart.
00:25:16.400 --> 00:25:22.079
Look at Cura Leaf versus GTI over the last year, over the last year and a half.
00:25:22.319 --> 00:25:26.640
Um, one of those has greatly outperformed the other one.
00:25:27.279 --> 00:25:35.359
And um it has so again, the number one position in the fund is CuraLeaf right now.
00:25:35.599 --> 00:25:48.400
A big part of that is appreciation, it is simple stock appreciation, and I have chosen not to do a forced rebalance and trim that.
00:25:48.880 --> 00:25:51.920
I've let it ride and it's risen to the top.
00:25:52.160 --> 00:25:53.599
And let me pause you there.
00:25:55.200 --> 00:25:55.599
Oh, go ahead.
00:25:55.680 --> 00:25:55.839
Go ahead.
00:25:55.920 --> 00:25:57.200
I was gonna I was just gonna pause you there.
00:25:57.279 --> 00:26:07.599
Like, but there are like my old job was hedge fund due diligence and interviewing hedge fund managers, and there's some people that when will let winners ride like that, almost a momentum trade in some ways.
00:26:07.759 --> 00:26:16.960
Then there's some people that will use that as an opportunity to rebalance and say, okay, Kierleaf's ridden, but it went from one-time sales to three-time sales, making up metrics.
00:26:17.279 --> 00:26:18.720
GTI is lagging.
00:26:18.799 --> 00:26:26.880
So why don't I sell that winner and rotate into something that might be more over undervalued as opposed to keeping that momentum trade?
00:26:27.279 --> 00:26:28.799
That's a that's a great point.
00:26:28.880 --> 00:26:53.920
And this is where we get into cannabis investing has turned into one of the strangest investments and different things in a portfolio manager mind than I ever imagined, because you guys probably know that I also manage um AdvisorShares Psychedelics ETF um plug, ticker symbol, P S I L.
00:26:54.640 --> 00:27:06.640
Um and Jesse just uh a couple weeks ago announced Eli Lilly acquiring our largest holding a tie Beckley.
00:27:07.599 --> 00:27:13.680
And uh I sure as hell trimmed off some of that winter immediately.
00:27:14.079 --> 00:27:29.200
Um I have gotten very, very inactive in managing MSOs very purposely because um I think we're all in a waiting game right now.
00:27:29.359 --> 00:27:36.240
We are waiting on announcements of you know the the briefs that are due next month from the ALJ.
00:27:36.960 --> 00:27:48.240
Um, everybody's in a weird waiting game, and I am choosing to sit on my hands for the most part in MSO's management.
00:27:48.400 --> 00:27:50.880
I'm even more active in YOLO management.
00:27:51.119 --> 00:27:58.960
Um, I have turned more inactive, very purposely so in MSOs, because I also like the makeup of the fund right now.
00:27:59.119 --> 00:28:03.519
I am perfectly happy having CuraLeaf and a true leaf right behind it.
00:28:03.759 --> 00:28:11.680
GTI a little bit lower weighted, and I'm happy that uh Glasshouse has risen into the number four position.
00:28:11.920 --> 00:28:14.480
So I'm eyeballing these all the time.
00:28:14.640 --> 00:28:18.000
I do have the ability to make changes in these at any time.
00:28:18.400 --> 00:28:25.599
Um, you know, at some point I have to decide when I'm gonna peel off some C21 because that stock's gonna go away.
00:28:25.839 --> 00:28:27.039
But you know what?
00:28:27.359 --> 00:28:29.759
Are these stocks doing great lately?
00:28:30.000 --> 00:28:31.680
Are they doing lousy lately?
00:28:31.920 --> 00:28:39.680
Is having a um a low risk position uh in a company like C21 that's getting acquired a good thing in the portfolio right now?
00:28:39.839 --> 00:28:41.759
Yeah, it's a good thing in the portfolio.
00:28:42.000 --> 00:28:51.920
So yeah, I am um you know perfectly happy with the current makeup of the weighting of the holdings in uh MSOs right now.
00:28:52.240 --> 00:29:02.640
If I had money burning a hole in my pocket, then I might add to different stocks than adding over the portfolio overall.
00:29:02.799 --> 00:29:15.359
That's a separate question, but tactically rebalancing selling stock stock A and buying stock B, I am very purposely choosing not to do that.
00:29:15.519 --> 00:29:28.079
And I'm doing that more than I have ever done in a fund before, or I'm doing in any of our other funds that I manage right now because of this wacky world of cannabis investing we're in right now.
00:29:28.319 --> 00:29:30.400
Yeah, I feel like we're in Twilight Cup.
00:29:30.720 --> 00:29:31.119
Right.
00:29:31.599 --> 00:29:34.720
Now, um, let me go back to CuraLif.
00:29:35.759 --> 00:29:42.880
I still think CuraLeaf might have more torque than a couple of the other companies.
00:29:43.039 --> 00:29:49.920
Now, torque is a word that people um in cannabis land wanted to start using over the last six months because they thought it sounded cool.
00:29:50.160 --> 00:29:56.160
Um, but it's uh which of these companies might have more upside when things change.
00:29:56.319 --> 00:29:58.880
We're all waiting for things to change.
00:29:59.039 --> 00:30:04.400
Uh, and it might be a slower process than any of us hoped for um when those changes happen.
00:30:04.480 --> 00:30:06.079
It's still going to be a process.
00:30:06.400 --> 00:30:14.240
But this is when you get into just personal preference and my own opinions as a portfolio manager.
00:30:14.799 --> 00:30:39.759
If we have the real rescheduling that we think is all coming, if we have the ability to get uh listed on NASDAQ or the New York Stock Exchange, I happen to like Cure Leaf a great deal just for its look and feel and institutional acceptability and view from the outside world.
00:30:40.000 --> 00:30:49.440
And we're living in a world right now, guys, where we have a bunch of cannabis investors that are pretty up to speed and know cannabis investing.
00:30:50.160 --> 00:30:53.119
And then we have the rest of the population.
00:30:53.279 --> 00:30:57.039
And our cannabis world is pretty damn small and pretty damn tight.
00:30:57.279 --> 00:31:10.400
I'm talking about your neighbors, co-workers sometimes, anybody else that's outside of our um cannabis communication, they are clueless about the opportunity happening in cannabis right now.
00:31:10.559 --> 00:31:12.880
And it's not much different.
00:31:13.119 --> 00:31:26.079
And I know from experience that Kim and Christine and team have been meeting with uh major firms in New York, and they're all saying, and this sounds great, and they're sitting and waiting still.
00:31:26.319 --> 00:31:27.839
Everybody is waiting.
00:31:28.079 --> 00:31:33.599
Even the companies like uh Glasshouse and TrueLib that just got listed on the New York Stock Exchange.
00:31:33.759 --> 00:31:40.240
Um, Wall Street doesn't care, individual investors don't care, nobody cares right now.
00:31:40.400 --> 00:31:53.119
Everybody's waiting, and I'm pointing out this whole long story because when that changes, I think unfortunately, GTI has gotten off of a lot of people's radar.
00:31:53.279 --> 00:31:58.000
It was darling two or three years ago, always beat as the highest quality.
00:31:58.240 --> 00:32:01.839
Everybody still agrees they got the best balance sheet out there.
00:32:02.240 --> 00:32:10.160
But I think uh Cure Leaf is the big winner in outside people's eyes of as the biggest cannabis company.
00:32:10.319 --> 00:32:13.759
I think that gives it torque to new investment.
00:32:14.640 --> 00:32:15.519
What do you think?
00:32:15.680 --> 00:32:21.039
So if you guys can hear me now, sorry for the technical issues, but uh I'm back without delay.
00:32:21.279 --> 00:32:21.920
Yeah.
00:32:22.400 --> 00:32:30.960
Um so interesting point because I was gonna ask have you noticed any liquidity changes with True Leave and Glasshouse being listed?
00:32:31.119 --> 00:32:40.240
Because I've been hearing similarly, is that you know, yes, they're listed, but it hasn't really resulted in much flow activity change.
00:32:40.400 --> 00:32:50.319
But you know, has it have you experienced that as at least with like you said, I know you're you've been very inactive, and I've I've watched that jungle java does a great job keeping tabs on it and reporting.
00:32:50.400 --> 00:32:56.160
And like a year ago, you were still you know seemed like there was more work, and now you're to your point in this waiting game.
00:32:56.319 --> 00:32:58.559
But should like new capital come in?
00:32:58.720 --> 00:33:03.039
You know, have you noticed a difference with your ability to trade in those names?
00:33:03.119 --> 00:33:07.680
Like truly classes specifically being the I mean, great question.
00:33:08.079 --> 00:33:08.720
Great question.
00:33:09.039 --> 00:33:11.519
And um, no, for the most part, I agree.
00:33:11.599 --> 00:33:18.799
It's just frustrating as hell that the outside world doesn't seem to care that those stocks are listed on the New York Stock Exchange.
00:33:18.960 --> 00:33:21.039
Yet, are they now more tradable?
00:33:21.119 --> 00:33:22.079
Are they more liquid?
00:33:22.319 --> 00:33:22.960
Absolutely.
00:33:23.119 --> 00:33:35.599
And I'm looking at my screens right now, and um, you know, CuraLeaf, they did the reverse split, so they're eight something dollars, and True Leave was eight something dollars on their own already.
00:33:35.759 --> 00:33:38.799
True Leave has traded 800,000 shares today.
00:33:38.960 --> 00:33:49.920
That's good for TrueLeave, that's more volume than we ever used to see, or um, on an average day, regular days, than we used to see normally on True Leave.
00:33:50.079 --> 00:33:51.839
So, yeah, there's more volume trading there.
00:33:52.000 --> 00:33:56.240
Glass has traded almost 400,000 shares today.
00:33:56.559 --> 00:33:59.440
So, you know, a little bit more volume.
00:34:00.079 --> 00:34:14.559
Um, again, they are listed on the New York Stock Exchange, and now they are technically allowed to be traded and custoded at a lot more venues, like throughout BNY Mellon and Pershing, for instance.
00:34:14.800 --> 00:34:19.199
Uh, you know, they were always available at Fidelity and Schwab and a few places.
00:34:19.360 --> 00:34:25.039
But yeah, true leaving glasshouse are now available through a lot more brokerages and venues.
00:34:25.360 --> 00:34:30.880
But as you kind of alluded to, Morgan, and I said, most people don't care.
00:34:31.119 --> 00:34:38.559
There's just not that outside outside investors, it hasn't hit the mainstream news.
00:34:38.719 --> 00:34:44.159
No one's really taking notice or or making a difference, and or we're in this waiting game.
00:34:44.320 --> 00:34:53.280
So, yeah, more liquidity, more tradability, but not the real boost that everybody would hope for.
00:34:53.599 --> 00:35:00.079
What was the are you hearing feedback as what is the new goalpost that Wall Street's waiting on?
00:35:01.440 --> 00:35:02.800
The next announcements.
00:35:03.119 --> 00:35:07.840
It's really it's really the the next step of the uh of the rescheduling.
00:35:08.159 --> 00:35:14.800
And again, it technically doesn't matter to Glasshouse and True Leave, but it matters.
00:35:15.119 --> 00:35:15.360
Right.
00:35:15.679 --> 00:35:17.679
It's more just the continued process.
00:35:19.119 --> 00:35:20.159
Yeah, yeah, yeah.
00:35:20.320 --> 00:35:30.079
Yeah, I think I think it goes back to guys like this comment that I say all the time, uh, you know, say it for you, Dan, that a small cap growth manager said to me two years ago, explained everything in cannabis was an analyst.
00:35:30.159 --> 00:35:33.920
He said, Very cool story, Jesse, but how do I play the game if I don't know the rules?
00:35:34.159 --> 00:35:36.639
And that always struck me, and that's why I say it so much on the show.
00:35:36.719 --> 00:35:43.119
And I don't think it's different today, like these companies up listed, and if you're a sophisticated investor, like you still don't know how this shakes out.
00:35:43.199 --> 00:35:44.320
You don't know what the rules are.
00:35:44.480 --> 00:35:45.519
So you do one of two things.
00:35:45.679 --> 00:35:49.599
Either you make a bet in what you think the rules will be, which everyone's been burned on 97 times.
00:35:49.679 --> 00:35:56.079
So there's so people don't want to move ahead of these things, or you chill out for a while, figure out what the rules are, and say, I'll make a decision in three months.
00:35:56.239 --> 00:35:57.840
Not the biggest, not big, not a big deal to me.
00:35:57.920 --> 00:35:59.119
I'll just wait and see what happens here.
00:35:59.280 --> 00:36:00.400
And I think that's where we are.
00:36:00.559 --> 00:36:01.920
I don't think people hate those companies.
00:36:02.000 --> 00:36:03.760
I don't even think it's necessarily apathy.
00:36:03.920 --> 00:36:09.519
I think it's a calculated decision to say, tell me, wait till wait till I know the rules, and then I can decide if I want to play the game.
00:36:09.840 --> 00:36:11.440
Uh 100%, 100%.
00:36:11.760 --> 00:36:14.239
So people are waiting on those rules.
00:36:14.480 --> 00:36:22.800
And and part of what you just said, Jesse, was uh after they've been wrong 97 times, how many times has safe banking been floated?
00:36:23.039 --> 00:36:30.000
How much did these stocks pop when Joe Biden was running for president and said they were going to resum you know legalize?
00:36:30.159 --> 00:36:36.239
Uh, you know, how many times, to be blunt, have cannabis investors been burned?
00:36:36.559 --> 00:36:45.920
And it doesn't matter if you're Wall Street or you are an individual investor, um, they've been burned.
00:36:46.159 --> 00:36:52.079
So, yes, they're absolutely going to wait for we call it clarity.
00:36:52.239 --> 00:36:53.679
We're gonna wait for clarity.
00:36:54.000 --> 00:36:57.360
Um, and so much more is to be determined.
00:36:57.599 --> 00:37:00.000
Um, now here's another thought for you for you guys.
00:37:00.079 --> 00:37:01.679
Let's see what you think about this.
00:37:02.159 --> 00:37:05.280
Um for people that say, where's the growth?
00:37:05.599 --> 00:37:09.679
Because are these fast growth companies now or do they look great?
00:37:09.840 --> 00:37:21.519
If you're a micro cap investor or even a small cap investor, um, so people hate it if I call uh call these cannabis companies micro cap because a few of them are small caps.
00:37:21.920 --> 00:37:24.079
You expect explosive growth.
00:37:24.239 --> 00:37:32.000
You expect explosive, fantastic looking financials if you're a small capper or micro cap investor.
00:37:32.239 --> 00:37:40.000
We don't really have that among these cannabis investors, the cannabis companies, excuse me.
00:37:40.239 --> 00:37:41.840
So where's the growth come from?
00:37:42.159 --> 00:37:45.360
Well, we got to get 280e to go away.
00:37:45.440 --> 00:37:46.719
I mean, really go away.
00:37:46.880 --> 00:37:51.920
I mean, it's gone away for uh glasshouse, sort of, yeah.
00:37:52.079 --> 00:37:55.760
And it's gone away for a big part of True Leave.
00:37:56.000 --> 00:37:59.920
They had to you know separate out the uh adult east states.
00:38:00.239 --> 00:38:03.599
Um, but we need 280E to go away.
00:38:03.679 --> 00:38:05.599
That adds a lot to the to the balance sheet.
00:38:05.679 --> 00:38:17.760
You know, we can talk about uh how they're treating those tax uh provisions, but we need um all the CBD shops and the hemp business to go away.
00:38:17.920 --> 00:38:22.079
And yes, I know there's people in states that need and want products.
00:38:22.559 --> 00:38:30.000
I hope that state licensed legal dispensaries get to continue to expand in places that they don't exist yet.
00:38:30.239 --> 00:38:49.519
But yeah, it's been a really unfair playing field with the billions of dollars in sales that are going into CBD slash hemp-based products that we hope and think most of will get redirected into licensed legal, state legal dispensaries.
00:38:49.679 --> 00:38:52.719
That's really a 2027 story, probably.
00:38:53.039 --> 00:38:56.159
So um and then we got additional states coming online.
00:38:56.480 --> 00:39:03.039
So I think the actual growth numbers of the underlying companies might look a whole hell of a lot better in the future.
00:39:03.599 --> 00:39:14.719
And that's another little side story besides what you already mentioned, Jesse, of these people need clarity, they need to know the rules, they need to know how it's gonna work before they're really committed to investing.
00:39:20.159 --> 00:39:22.000
Do we lose Morgan again?
00:39:23.280 --> 00:39:24.480
Uh-oh, Morgan.
00:39:25.280 --> 00:39:26.480
Morgan looks discouraged.
00:39:26.800 --> 00:39:27.599
He's very discouraged.
00:39:31.920 --> 00:39:34.960
Um, you're good.
00:39:35.039 --> 00:39:36.559
Yeah, I can I I I can talk for a little bit.
00:39:36.639 --> 00:39:40.559
We've got like just five you know, five minutes or so um left here, Dan.
00:39:41.119 --> 00:39:46.639
I think you know, uh one helpful thing uh you know I'd like to get into real quick would be on the risk management side.
00:39:46.800 --> 00:39:50.079
You know, the older I get, I'm super old, guys, I'm 51.
00:39:50.480 --> 00:39:55.679
And I feel like the older you get, you realize life and investing is first and foremost a risk management game.
00:39:55.840 --> 00:39:59.760
If you can cut those losses and get some wins on the upside, things work out pretty well.
00:39:59.920 --> 00:40:12.960
But where you get really buried is that something goes down, like we've seen in you know, in cannabis, like there's been you know a 90% drawdown in uh you know, MSOS picked peaked on February 10th, 2021, I think$55 a share, Dan.
00:40:13.119 --> 00:40:17.280
And here we are now, you know, back down around four, back down around four bucks.
00:40:17.440 --> 00:40:18.880
And so that's when the sector at large.
00:40:19.039 --> 00:40:26.320
So I'm not saying, you know, I'm not assigning responsibility for you for that whole macro change, but in your portfolio, yeah, I see that.
00:40:26.480 --> 00:40:27.840
I know they're X handles.
00:40:28.239 --> 00:40:33.119
Um and so I'm curious, like in the in the portfolio, like how do you think about risk management?
00:40:33.199 --> 00:40:39.440
When kind of everything is going against you, like how do you decide when to cut an individual company or when to start trimming a name?
00:40:40.239 --> 00:40:50.719
Um, and again, I'll I'll go back to something I was sort of giving thoughts on earlier that managing the fund MSOS is unlike anything I've you know done in other funds.
00:40:50.960 --> 00:41:07.280
Um, you know, we have the psychedelics fund, and uh about a year and a half ago we launched uh uh HVAC, which has been a great fund, um heating, ventilation, air conditioning, and it is a picks and shovels play on AI and data centers.
00:41:07.599 --> 00:41:10.719
So we have um this industrials fund.
00:41:10.960 --> 00:41:13.840
I'm only mentioning that, besides plugging ourselves.
00:41:14.000 --> 00:41:21.760
I'm mentioning that because I can manage those funds much more tactically.
00:41:22.400 --> 00:41:42.719
I have uh you know criteria that I very much use that looks at certain analysts that have high ratings, I look at chances of earnings revisions, I look at chances of earnings beats, and we have some quantitative tools to try to use those things.
00:41:43.039 --> 00:42:02.480
And so if one of my stocks is pops up to the top of the list that I have on the watch list, and it's one of the stocks that I own, I will completely tactically sell that stock, buy a new stock, add it to the portfolio, and I can do it as an actively managed fund on any schedule.
00:42:02.719 --> 00:42:06.880
So in any given week, I am making changes tactically.
00:42:07.760 --> 00:42:20.719
Psychedelics, I have a smaller universe, so I'm rarely completely changing a position, but I'm rather constantly adding to certain positions, trimming positions in the heating in the HVAC fund.
00:42:21.199 --> 00:42:33.199
I am every week killing off some positions entirely, adding some new positions, but I also do do it carefully for tax purposes to not not uh cause taxes.
00:42:33.360 --> 00:42:35.519
Do I do any of that in MSOs?
00:42:35.840 --> 00:42:37.519
No, I really don't.
00:42:37.840 --> 00:42:43.760
I really don't uh because limited universe of stocks, I like the makeup.
00:42:44.480 --> 00:42:58.880
Um if it's in the top five holdings or so, which I'll go ahead and rattle off CuraLeaf, True Leaf, GTI, Glasshouse, Toronto, Cresco, Terrace End.
00:42:59.920 --> 00:43:03.920
If one of those stocks goes to zero, we're all fucked.
00:43:04.239 --> 00:43:16.400
Sorry for the word, but uh um does anybody in their right mind think that I can sell 24 million shares of GTI in any short period of time or want me to try?
00:43:16.800 --> 00:43:17.119
No.
00:43:17.840 --> 00:43:20.320
Now, here's another thing.
00:43:20.800 --> 00:43:30.159
This fund that owns virtually all the tradable multi-state operators in the US, it owned cannabis.
00:43:31.440 --> 00:43:37.679
Now, was everybody buying cannabis um formerly Columbia Care four and five years ago?
00:43:38.079 --> 00:43:39.920
Yeah, everybody was.
00:43:40.800 --> 00:43:43.760
It was going down, it didn't look good.
00:43:44.639 --> 00:43:51.679
Um, but I owned 20 or 30 million shares of it because this is a billion-dollar MSOs fund.
00:43:53.280 --> 00:43:55.760
Jesse, do you think I should have sold it?
00:43:56.239 --> 00:43:56.880
Yes.
00:43:57.360 --> 00:43:58.480
Who would have bought it?
00:43:59.199 --> 00:44:11.920
Yeah, so we You're saying, Dan, is you kind of get for lack of better terms stuck in some of these positions, your forefronts, your airs, your cannabis, your gold floors, where it's like you're not a dumb guy, like you'd like to get out of it, but getting out of it, are you saying it would just crush the name that'd be counterproductive?
00:44:12.239 --> 00:44:13.840
It would crush the name.
00:44:14.079 --> 00:44:29.119
Um would anybody have invested in cannabis over the last five years if we had a time machine or we knew where we'd be sitting right now.
00:44:29.760 --> 00:44:30.880
All those questions.
00:44:31.039 --> 00:44:32.159
No, of course not.
00:44:32.400 --> 00:44:34.719
Of course, it'd be nice to go back in time.
00:44:34.960 --> 00:44:38.559
Uh hindsight's 2020 very, very, very easily.
00:44:38.960 --> 00:44:46.320
But um uh to go to these questions, I'd look at my my screen right now.
00:44:46.639 --> 00:44:49.840
Here's something that's I I think it's really relative.
00:44:50.719 --> 00:44:57.840
Today, today, CureLeaf is down 5.7 million in the portfolio right now.
00:44:58.719 --> 00:45:01.519
True leave is down 4.6 million.
00:45:02.159 --> 00:45:04.320
GTI is up 2.1 million.
00:45:04.400 --> 00:45:05.519
That's nice.
00:45:06.559 --> 00:45:22.719
So when cannabis was going to zero, its entire vow entire loss for the past year was less than on one day's up or down for any of the stocks I just mentioned.
00:45:23.119 --> 00:45:29.679
I'm saying that again, it's hard to understand, like, oh, why'd you ride cannabis to zero?
00:45:30.239 --> 00:45:32.159
Because it was immaterial to the fund.
00:45:33.280 --> 00:45:36.559
Um losing two million on cannabis.
00:45:39.440 --> 00:45:45.679
Losing two million dollars on cannabis um was basically ish.
00:45:46.320 --> 00:45:50.719
It was unsellable, pretty immaterial to the fund going up and down every day.
00:45:50.960 --> 00:45:55.039
Now, if I had hindsight, I would have sold the hell out of it three years ago.
00:45:55.280 --> 00:46:05.599
So another way of saying it, you're just kind of like to your point, is like the top cohort is pretty well anchored and you're letting the market kind of drive it from there.
00:46:05.760 --> 00:46:16.880
So, like some of these ones that you're just you know, if they drop out, it's it's not like that bad that bad for the front and letting the winners just continue to push to the top.
00:46:17.280 --> 00:46:18.559
Now I'm gonna skip ahead.
00:46:18.719 --> 00:46:26.800
Uh you know, Jesse uh you know told me some questions he might want to ask me today, and he hasn't stuck to it very well at all, but now this is a great discussion.
00:46:27.039 --> 00:46:28.639
Um I'm looking at the port.
00:46:29.119 --> 00:46:37.840
I'm looking at the portfolio right now, and I only have$3.2 million worth of Vario.
00:46:38.800 --> 00:46:41.679
I would love to have more Vario at this point.
00:46:41.920 --> 00:46:45.280
Um, Vario has only traded 15,000 shares today.
00:46:45.440 --> 00:46:50.639
It's turning into a serious tier one company for its footprint and its reach and everything else.
00:46:50.719 --> 00:46:54.239
We're doing a great job, but it doesn't trade much at all.
00:46:54.480 --> 00:47:00.159
If I have money burning, if I have money in my hand, that's a stock I might add to.
00:47:00.719 --> 00:47:03.679
Um I go down the list a little bit further.
00:47:03.840 --> 00:47:10.559
I got Planet 13 in there, and I got tens of millions of shares of Planet 13.
00:47:10.639 --> 00:47:14.159
It's not really bought or sellable, so I'm glad they're merging into Vario.
00:47:14.559 --> 00:47:15.760
That's a neat thing.
00:47:16.000 --> 00:47:21.199
Um Ascend, I don't have much of that, but I possibly would add more to that.
00:47:21.360 --> 00:47:23.360
But then you go down the portfolio.
00:47:23.760 --> 00:47:25.360
Oh, Vexed is pretty solid.
00:47:25.440 --> 00:47:30.159
I have less than a million dollars worth of Vexed, it's only 18 cents a share.
00:47:30.480 --> 00:47:33.360
Pretty good company, pretty good operations.
00:47:33.760 --> 00:47:37.360
That's a stock I could possibly add more to with cash.
00:47:37.599 --> 00:47:47.360
But there's other companies in here that are in here, they're representative of the overall MSO space, but I might not want to buy them today.
00:47:47.599 --> 00:47:55.119
If somebody gave me cash and I was putting it to work, there's certain companies in this portfolio that I would add to.
00:47:55.360 --> 00:48:00.400
There's certain companies that I would not add to, and I'm not going to say who they are.
00:48:00.719 --> 00:48:11.039
Um, but I'm not really looking to try to hit the bid and sell them down tactically, if that makes sense.
00:48:11.280 --> 00:48:15.199
And again, it's very different than I would manage any of the other funds that I manage.
00:48:16.000 --> 00:48:24.559
Yeah, it's a different mindset with the liquidity parameters that you have to deal with, which are yeah, just way different um in terms of your ability to act actively manage some of these names.
00:48:24.719 --> 00:48:28.639
I know, Dan, uh you do run a business and you've got about 12 minutes left in the trading day.
00:48:28.719 --> 00:48:30.159
Do you need to uh jump here?
00:48:31.119 --> 00:48:32.079
No, I'm good.
00:48:33.599 --> 00:48:34.800
Why don't we finish up?
00:48:34.880 --> 00:48:36.559
Um, take just a couple of minutes, I think.
00:48:36.639 --> 00:48:39.199
Um, and Morgan, since you're back, do you want to lead this discussion?
00:48:39.280 --> 00:48:42.800
Just kind of maybe some of the more specifics about the counterparty, the counterparty risk.
00:48:42.880 --> 00:48:46.719
I think we covered it, but these are a couple of interesting elements that are important for investors.
00:48:46.800 --> 00:48:56.880
And the big one for me, um, you know, Morgan, just in terms of you know framing the discussion is understanding that counterparty risk, because when you are investing, you had this in PSDN, Morgan, and we had some candid conversations about it.
00:48:57.039 --> 00:49:01.119
You should understand the whole, you know, Scott Grossman, know what you own trademark.
00:49:01.440 --> 00:49:11.440
Um, you should, in this case, know what you own in terms of the expertise of Dan, the you know, the you know the infrastructure of advisor shares, but also in this case, I think it's unique.
00:49:11.519 --> 00:49:12.559
We do have that counterparty in there.
00:49:12.639 --> 00:49:14.960
So maybe you could flesh that out a bit, Morgan.
00:49:16.000 --> 00:49:16.320
Sure.
00:49:16.480 --> 00:49:20.480
Yeah, I mean, I think it's well, I mean, you talked to the we covered the why earlier.
00:49:20.639 --> 00:49:22.639
Obviously, there's the the benefit of the why.
00:49:22.719 --> 00:49:33.760
And so, you know, maybe a question for you, Dan, is because it's been a few years obviously since we've um were in the space, but how has the counterparty landscape changed?
00:49:33.920 --> 00:49:39.199
Have you seen more come in that um, you know, to your point, I think you said you have five now.
00:49:39.519 --> 00:49:51.519
Um, so you know, like is there a way you look at it from how much exposure you're putting with various groups depending on you know their balance sheets, like how how much do you have to do uh like work at this point?
00:49:51.679 --> 00:49:55.119
Um, I mean you guys are still managing it's around a billion, right?
00:49:55.199 --> 00:49:56.400
In MSOS.
00:49:56.880 --> 00:49:57.199
Yeah.
00:49:57.840 --> 00:50:04.159
Uh you know, it's interesting, Morgan, that the um the landscape is is constantly changing.
00:50:04.320 --> 00:50:08.960
And years ago, we used to we started with total return swaps with with Cowan.
00:50:09.119 --> 00:50:13.679
And Cowan was very deep in the cannabis space, doing lots of things.
00:50:14.000 --> 00:50:18.239
And um they were a very good partner uh underwriting total return swaps.
00:50:18.400 --> 00:50:35.360
And um, for people that don't know, um these are big Wall Street firms that have big risk departments and lawyers, and um they don't want risk, and so they own stock for all the total return swaps that they're owning.
00:50:35.599 --> 00:50:46.559
Um but then they got acquired by TD Bank and got out of the business, and we uh moved all of our total return swaps to Nomura, who gave us a very good deal.
00:50:46.719 --> 00:50:55.440
And I don't mind name-dropping them because they're in our annual report, our semi-annual reports, it's public information, and and they do filings on the stocks that they own.
00:50:55.760 --> 00:51:07.760
But um we use a word called capacity uh around total return swaps, and um Nomura doesn't want to own 10% of CuraLeaf.
00:51:07.920 --> 00:51:08.880
Well, that'd be really hard to do.
00:51:08.960 --> 00:51:10.559
Cura Leaf has a lot of outstanding shares.
00:51:10.639 --> 00:51:14.960
They don't want to own 10% of TrueLeaf, but don't want to own 10%, they don't want to own 5%.
00:51:15.760 --> 00:51:22.079
So they have limits on how much of a company, any company that they want to own.
00:51:22.320 --> 00:51:39.280
Um, they also serve other customers, other customers that don't have anything to do with cannabis, and they only might have certain amounts of balance sheet available to buy a bunch of stocks to back up all the swaps that uh they're writing for people.
00:51:39.679 --> 00:51:46.639
So we also don't want to have what you guys have both mentioned of the word counterparty risk.
00:51:46.880 --> 00:51:52.800
So um we don't want anybody to turn into Lehman Brothers uh for people that are old enough to know what that is.
00:51:53.039 --> 00:51:55.760
I was gonna say I don't know how much we're on it for that.
00:51:55.920 --> 00:51:58.719
So it feels like yesterday over here, man.
00:51:58.880 --> 00:51:59.519
Oh, yeah.
00:51:59.760 --> 00:52:13.039
So so um we have uh total return swaps with National Bank of Canada, we have total return swaps with Clear Street, we have uh total return swaps with Marex, we have total return swaps with Canor Fitzgerald.
00:52:13.679 --> 00:52:21.280
Um, and the amount of companies that they want are willing to own uh changes over time.
00:52:21.440 --> 00:52:26.159
Sometime their balance sheet and availability changes over time.
00:52:26.480 --> 00:52:40.480
Um, how much money they have in with other fund customers and other cannabis or non-cannabis uh products changes, and therefore the rates that we pay also are negotiable and change.
00:52:40.639 --> 00:52:44.000
Um just pausing there for a second.
00:52:44.079 --> 00:52:49.679
So, like obviously the chips have been just getting smoked after an epic rally.
00:52:50.079 --> 00:53:01.519
Like, do is there downstream effects when there are these other like macro movements where billions and billions of dollars are being you know either going up or down, or is that their willingness to you know their balance sheet in cannabis?
00:53:01.599 --> 00:53:02.639
And like, you know.
00:53:03.360 --> 00:53:07.199
Um and you know, it's not a day-to-day thing in the short-term thing.
00:53:07.360 --> 00:53:15.519
So no, I I haven't heard of any uh direct pain from uh what's happened with uh with chips and semiconductors lately.
00:53:15.760 --> 00:53:20.559
Um, but again, all all of it are are moving parts.
00:53:20.719 --> 00:53:28.480
And um that's yeah, I was just trying to give like some clarity to people like what what moving parts would like that you're feeling the downstream on.
00:53:28.880 --> 00:53:29.840
You know, it's funny.
00:53:29.920 --> 00:53:42.719
Uh um a big thing was there's a certain state in the United States that their cannabis commission wanted to view things differently than any other state did.
00:53:42.960 --> 00:53:49.280
Um, and for people that are involved in the cannabis space, yeah, yeah, that's frustrating that all the states want to manage things differently.
00:53:49.599 --> 00:54:06.880
Well, they wanted to say if any company owned five percent of a cannabis company operating in that state, they had to have a representative license with the state on the ground in that state.
00:54:07.360 --> 00:54:11.519
Um, that's a little bit you know, getting in the weeds of this thing, pun intended.
00:54:11.679 --> 00:54:33.440
But um so companies like Nomura and National Bank of Canada and Merx and Canter Fitzgerald says, Oh my god, no, there's no way we can own 5% of a cannabis company because we're not going to um fulfill that particular state's wishes.
00:54:34.000 --> 00:54:36.800
So that's why I need to print things out.
00:54:37.119 --> 00:54:38.960
Now, here's an interesting thing though.
00:54:39.199 --> 00:54:48.800
I mentioned earlier that we were able to take true leave total return swap and turn a lot of it into um stock.
00:54:49.199 --> 00:54:54.960
I didn't have to own as much swap anymore because I'm able to custody at Bank of New York Mellon, which is awesome.
00:54:55.280 --> 00:55:00.480
So, do you know which swaps I sold down and turned into stock?
00:55:00.800 --> 00:55:02.480
The most expensive ones.
00:55:02.719 --> 00:55:12.800
Because I pay a different rate at National Bank of Canada as compared to Nomura, as compared to Mereks, as compared to Canada Fitzgerald.
00:55:13.119 --> 00:55:14.480
They have different rates.
00:55:14.719 --> 00:55:20.159
I um I keep the biggest balances with the cheapest ones.
00:55:20.320 --> 00:55:23.840
And if I need to trim, I trim the most expensive ones.
00:55:24.079 --> 00:55:24.639
Simple as that.
00:55:24.880 --> 00:55:26.960
Do the cheapest ones of higher credit risk, though, Dan?
00:55:27.039 --> 00:55:29.679
Are those are those credit ratings similar across the board?
00:55:30.239 --> 00:55:32.159
I think they're very similar across the board.
00:55:32.239 --> 00:55:39.599
And um the companies I'm I'm dealing with, uh, we believe to all be uh rock solid and and safe.
00:55:39.920 --> 00:55:46.960
And um, you know, another thing is that I'm not dealing with exotic or highly leveraged swaps.
00:55:47.039 --> 00:56:01.920
Uh, we happen to know that those companies own stock for every bit of uh swap that they own, which is also why I was able to close swap on true leave and buy an equal amount of you know tens of millions of shares of stock and move it to the fund.
00:56:02.320 --> 00:56:04.400
So it's all it's always an issue.
00:56:04.480 --> 00:56:06.320
You know, what are what are the credit ratings?
00:56:06.400 --> 00:56:08.960
You know, what what is the counterparty risk there?
00:56:09.280 --> 00:56:14.880
But um the rates are not directly tied to that.
00:56:15.119 --> 00:56:21.039
It's more tied to their balance sheet availability and what they're willing to give us.
00:56:21.840 --> 00:56:37.679
So so it's a good point on the um, I think you're kind of mentioning this a bit with like how much they want to have exposure with the swaps, but like do you now that companies are starting to up list, like using TrueLeave or maybe Glasshouse as an example, and you're owning them directly.
00:56:38.159 --> 00:56:50.880
Does BNY or is this like a new thing you're now having to chase where they're saying we only want you like you can only own so much of this company directly, and then you'd still want to use some swaps because you don't want to go over a certain direct ownership threshold?
00:56:50.960 --> 00:57:02.880
Or is that and I don't know if that's too technical of a discussion right now, but I just was you know kind of curious, like what that's actually an excellent um question, Morgan, that I haven't had come up directly.
00:57:03.119 --> 00:57:14.000
And my theory is that it might be for um custody versus ownership on the balance sheet.
00:57:14.719 --> 00:57:25.119
So BNY Mellon is one of the largest custody banks in the world, they are custodying that stock for our fund.
00:57:25.519 --> 00:57:44.000
Our fund owns it and files filings that we own it, as compared to when a swap counterparty is owning the stock just on their own books to back up the risk of the total return swap.
00:57:44.320 --> 00:57:46.800
I think that might be the different animal.
00:57:48.480 --> 00:57:50.000
Yeah, okay.
00:57:50.320 --> 00:57:53.519
Yeah, because I was like kind of yeah, nice to Noah chimed in as well.
00:57:53.599 --> 00:57:58.800
But um records, yeah, yeah, yeah.
00:57:59.360 --> 00:58:00.079
Interesting.
00:58:00.400 --> 00:58:12.079
And and Dan, like when investors are looking at this in terms of the return, and just to reiterate, but not to be hopefully too basic to people, but if GTI returns 10% in a year, you own it via the total return swap.
00:58:12.239 --> 00:58:15.039
Back in my days, Dad, those are like LIBOR plus a spread.
00:58:15.119 --> 00:58:18.159
I think I was at LIBOR plus a point or point and a half back in the day.
00:58:18.320 --> 00:58:22.880
Is that still kind of how these are prices, some sort of floating interest rate plus a spread uh above that?
00:58:23.280 --> 00:58:23.760
100%.
00:58:24.159 --> 00:58:25.920
Yeah, it's a it's a real good point.
00:58:26.079 --> 00:58:30.559
Um, and it's it's public information, uh, if people know where to look anyway.
00:58:30.800 --> 00:58:40.719
Um LIBOR's gone away, and uh a couple of the companies call it SOFR, and some of the companies call it OBFR, which is overnight bank rate plus a spread.
00:58:40.880 --> 00:58:44.159
So it's we pay um for the cost of the swap.
00:58:44.320 --> 00:58:45.119
They're not free.
00:58:45.280 --> 00:58:49.440
We pay overnight bank rate plus a small spread.
00:58:49.679 --> 00:58:52.559
But on the other hand, this is an important thing.
00:58:53.119 --> 00:59:01.840
Um, the fund has hundreds of millions of dollars in cash earning overnight bank rates.
00:59:02.559 --> 00:59:06.480
So we're earning a ton of interest, we're also paying for the swaps.
00:59:06.639 --> 00:59:09.199
There is a spread, they're not free.
00:59:09.599 --> 00:59:13.039
Um, but uh it's not huge.
00:59:13.920 --> 00:59:18.800
So just to flesh this out a little bit, so far I looked is at what 3.65 right now.
00:59:18.960 --> 00:59:21.920
I don't know what Dan's rates rates are, point, point and a half.
00:59:22.000 --> 00:59:29.280
I don't know exactly what it is, but probably pushing five all in on that cost, but offset and some interest against the cash over there.
00:59:29.440 --> 00:59:34.559
So I don't know exactly where that works out, but somewhere between zero and five for sure, Dan.
00:59:34.639 --> 00:59:35.840
Does that sound like a ballpark range?
00:59:35.920 --> 00:59:38.159
Probably closer to net three or four.
00:59:39.119 --> 00:59:40.960
Yeah, yeah, you're in the ballpark.
00:59:41.119 --> 00:59:46.480
And again, um, you know, one counterparty charges one rate and another counterparty charges a different rate.
00:59:46.559 --> 00:59:52.239
And I try to keep uh larger balances in in the uh the lower rates.
00:59:52.480 --> 01:00:12.000
And I also want to keep all those doors open because knock on wood, I'm hoping for hundreds of millions of dollars of inflows again to this fund when uh when things change and the outside investing world takes sight of cannabis investing once again.
01:00:12.320 --> 01:00:18.559
So I'm keeping my doors open on the swap capacity, we call it.
01:00:18.800 --> 01:00:20.960
But yeah, you're in the ballpark at the cost.
01:00:21.119 --> 01:00:32.320
And again, hey, for anybody out there, mutual funds, funds inside your 401k, ETFs, all of them have fees and expense ratios.
01:00:32.559 --> 01:00:38.400
If somebody thinks they want to um, you know, just buy stocks on their own, yeah, knock yourselves out.
01:00:38.480 --> 01:00:39.599
Good luck with that.
01:00:39.840 --> 01:00:46.159
But uh the beauty of the ETF is that it is uh one fund, it's one purchase.
01:00:46.320 --> 01:00:50.719
You're you're not gonna get a capital gains distribution at the end of the year, it's tax efficient.
01:00:50.960 --> 01:00:54.639
And um, but yeah, there's fees, it's not free.
01:00:54.800 --> 01:00:57.679
Yeah, there's uh there's pros and cons there.
01:00:58.320 --> 01:01:02.559
There's a cost to the financial engineer, financial ear engineering you were doing.
01:01:02.880 --> 01:01:04.320
Yeah, and you know what?
01:01:04.400 --> 01:01:09.280
Um the thing about um if and when we hope all these U.S.
01:01:09.360 --> 01:01:20.079
cannabis companies can get up listed, I am gonna convert as much darn percentage of that as I can into non-swap, into direct stock.
01:01:20.239 --> 01:01:23.760
But I got to remind people, I'm still gonna use total return swaps.
01:01:23.920 --> 01:01:31.119
And the reason is we have this fund very purposely, super top heavy in the top holdings.
01:01:31.360 --> 01:01:37.760
And if you look at a regular mutual fund or regular ETF, it is not that top heavy.
01:01:37.840 --> 01:01:46.079
That is not allowed under the Internal Revenue Code and the 1940 Act diversification concentration rules.
01:01:46.400 --> 01:01:57.280
So that's a big part of the reason that I haven't converted all of True Leave to being holding it directly, because I fully expect to be doing the same thing with CuraLeaf.
01:01:57.519 --> 01:02:00.719
Well, I've already done a lot of it with Cura Leave because they're listed on the TSX.
01:02:00.800 --> 01:02:01.760
So I misspoke.
01:02:01.920 --> 01:02:17.039
I fully expect to be doing it the same thing with GTI and Verano and Cresco uh in the the near future because of I'm so concentrated and I gotta meet the diversification concentration rules.
01:02:17.360 --> 01:02:21.199
So is that how like the single stock ETFs they're just using a swap, right?
01:02:21.280 --> 01:02:22.159
Because they 100%.
01:02:22.960 --> 01:02:23.280
Yeah.
01:02:23.519 --> 01:02:30.960
So it's like anyone that's buying for whatever reason a single stock ETF instead of just buying the stock, they're that's that's their get-around.
01:02:31.679 --> 01:02:37.840
Yeah, back in the old days, we used to tell people because people would come to us and want to develop an ETF, and they'd say, we want to own 10 stocks.
01:02:37.920 --> 01:02:39.440
And we'd say, No, you can't do that.
01:02:39.599 --> 01:02:44.960
You have to own more stocks than that, or you're not gonna be you're not gonna fit in the 1940 Act rules.
01:02:45.119 --> 01:02:50.639
Um, now there are single stock funds and there's super concentrated funds.
01:02:50.800 --> 01:02:52.880
But yeah, they're using total return swaps.
01:02:52.960 --> 01:02:59.440
Total return swaps are very normal, very common, and there's trillions of dollars in it.
01:02:59.679 --> 01:03:01.760
It's not unique to cannabis investing.
01:03:01.920 --> 01:03:03.840
Um, people need to understand that.
01:03:04.159 --> 01:03:04.800
Yeah.
01:03:06.400 --> 01:03:07.519
About at the hour here, guys.
01:03:07.599 --> 01:03:07.920
Anything else?
01:03:08.000 --> 01:03:09.280
Uh Dan, it's been a great discussion.
01:03:09.360 --> 01:03:11.920
Anything else uh you want to touch on before we let you jump?
01:03:12.239 --> 01:03:13.760
Uh, there's lots of things I want to do.
01:03:15.440 --> 01:03:16.800
No, it's been great, guys.
01:03:16.880 --> 01:03:21.840
I I hope this is good education for people, is is the main point of doing this.
01:03:22.000 --> 01:03:27.280
Um, I think you should know what you own, understand what you own.
01:03:27.679 --> 01:03:32.880
And um we all hope for better times of cannabis investing.
01:03:33.119 --> 01:03:33.760
Yeah.
01:03:34.559 --> 01:03:35.119
We're due.
01:03:35.360 --> 01:03:36.480
We're overdue, guys.
01:03:36.639 --> 01:03:40.000
Well, we'll be closing out by saying thank you to FlowHub for making today's show possible.
01:03:40.079 --> 01:03:47.599
Whether you have one dispensary or 166 like Kira Leaf, who happens to be on the TSX, having the right technology is more important than ever.
01:03:47.840 --> 01:03:51.039
That's why so many top retailers choose FlowHub.
01:03:51.199 --> 01:03:56.559
What you need to do if you have a dispensary is go to FlowHub.com, book a demo today, and see what is possible.
01:03:56.719 --> 01:03:59.679
So thank you to FlowHub for supporting today's show.
01:04:00.079 --> 01:04:02.480
Morgan, I appreciate you.
01:04:02.639 --> 01:04:04.559
I know you had some tactical struggles today.
01:04:04.719 --> 01:04:05.840
Don't beat yourself up.
01:04:06.000 --> 01:04:07.039
We all have bad days.
01:04:07.199 --> 01:04:08.239
You made it back in the end.
01:04:08.320 --> 01:04:10.079
I'm proud of your perseverance, Morgan.
01:04:10.559 --> 01:04:12.320
That's what we do in cannabis.
01:04:12.719 --> 01:04:13.199
Exactly.
01:04:13.920 --> 01:04:15.280
That's kind of a cannabis experience.
01:04:15.360 --> 01:04:18.000
Yeah, you took a bit of a beating today, but you started to come back at the end.
01:04:18.079 --> 01:04:18.960
So that was nice work.
01:04:19.360 --> 01:04:21.360
Dan, really, really appreciate uh you coming on.
01:04:21.440 --> 01:04:25.360
It's uh we should have had you on sooner, and I hope uh we'll see you back again here soon.
01:04:27.519 --> 01:04:29.280
So thank you to everyone listening.
01:04:29.519 --> 01:04:32.400
Again, if you're on uh YouTube, that's been a fantastic.
01:04:32.559 --> 01:04:39.119
Hit that uh thumbs up button, like, subscribe, even hit that bell so you know when new know when the uh new shows will come out.
01:04:39.360 --> 01:04:40.800
We're gonna be off for about two weeks.
01:04:40.960 --> 01:04:48.480
I've got earnings next week and I can't deal with additional stress, and then I'm finally taking vacation the following week, but we're still good for two shows in August.
01:04:48.559 --> 01:04:50.800
We'll just cram those into the back half of the month.
01:04:50.960 --> 01:04:54.800
So look for those sometime this the third and fourth week of August.
01:04:55.119 --> 01:04:55.920
That's it, guys.
01:04:56.000 --> 01:04:56.559
I've had it.
01:04:56.639 --> 01:04:57.199
We're out of here.
01:04:57.280 --> 01:05:00.480
Uh the Views Expresses podcasts are provided for informational purposes only.
01:05:00.639 --> 01:05:03.440
Nothing we said should be considered research door recommendation.
01:05:03.760 --> 01:05:05.360
All investing involves risk.
01:05:05.519 --> 01:05:10.559
You know that you're investing in cannabis, uh, including the loss of principle.
00:00:00.719 --> 00:00:03.200
Welcome back to higher expands.
00:00:03.439 --> 00:00:05.679
Number one independent cannabis investment.
00:00:06.639 --> 00:00:08.960
We break down complex cannabis markets.
00:00:12.560 --> 00:00:13.359
Career hosts.
00:00:13.599 --> 00:00:14.480
Just redmond.
00:00:14.800 --> 00:00:15.439
Work them back.
00:00:27.280 --> 00:00:28.879
Welcome back indeed.
00:00:29.039 --> 00:00:36.719
I am Jesse Redman, Chief Strategy and Investor Relations Officer at Leaf Brands, and I'm back with the very tan, the very grizzled veteran.
00:00:36.799 --> 00:00:38.399
His name is Morgan Paxia.
00:00:38.560 --> 00:00:39.759
Morgan, how are you, man?
00:00:43.600 --> 00:00:45.200
Morgan, can you hear me?
00:00:45.759 --> 00:00:47.280
I'm doing great.
00:00:47.759 --> 00:00:51.840
It's a hot, steamy summer in America right now, but we're doing great.
00:00:52.079 --> 00:00:52.320
Yeah.
00:00:52.560 --> 00:00:54.799
And I'm really excited to hear you have can you hear me?
00:00:55.200 --> 00:00:56.479
I can hear you, Morgan.
00:00:59.039 --> 00:01:00.960
I wanted to throw it over to our guest.
00:01:01.200 --> 00:01:06.640
We're really happy to have Dan Ahrens, manager director and chief investment officer at Advisor Shares.
00:01:06.799 --> 00:01:08.799
Dan, I appreciate you taking the time.
00:01:09.439 --> 00:01:10.239
Thanks, Jesse.
00:01:10.480 --> 00:01:11.280
Happy to be here.
00:01:11.359 --> 00:01:14.799
And hello, Morgan, uh long-term friend.
00:01:15.040 --> 00:01:22.159
Um and who might want to reboot because he seems to be on a nasty uh lag behind us right now.
00:01:23.439 --> 00:01:24.719
Are you okay there, Morgan?
00:01:24.799 --> 00:01:26.480
Or are you uh are you lagging?
00:01:28.799 --> 00:01:30.640
I'm gonna send my buddy Morgan a text.
00:01:30.719 --> 00:01:34.480
I'm gonna send my buddy Morgan a text and uh just tell him the robots right now.
00:01:34.560 --> 00:01:34.959
Sure.
00:01:36.719 --> 00:01:40.319
Morgan, if you can hear me, why don't you uh exit and come back in or do something?
00:01:40.400 --> 00:01:42.400
Because it seems like you're on a pretty good lag there.
00:01:48.879 --> 00:01:51.519
Sorry, guys, just texting Morgan to exit and come back.
00:01:51.680 --> 00:01:52.640
But we do that, Dan.
00:01:52.719 --> 00:01:55.280
Let's let Morgan work out the kinks, as we say, in the industry.
00:01:55.599 --> 00:01:57.760
You are a fascinating guy, Dan.
00:01:57.840 --> 00:02:02.159
You have a lot of stuff going on over at VisorShares, and you have an interesting background as well.
00:02:02.239 --> 00:02:06.480
So why don't you tell us a bit about who you are and uh what you're up to over there at the Advisor Shares complex?
00:02:07.359 --> 00:02:07.599
Sure.
00:02:07.680 --> 00:02:12.879
Well, I think a lot of people that follow cannabis closely, at least, might uh know.
00:02:13.280 --> 00:02:22.879
But um, you know, I've been managing ETFs for 15 something years, and I managed mutual funds before that.
00:02:23.120 --> 00:02:56.319
And um, you know, back when we first founded Advisor Shares uh along with Noah Hammond, uh who's his baby, um, he hired me and thought at some point, you know, we might need to do a Vice-themed ETF because I had founded this thing a long time ago called the Vice Fund, Mutual Fund that had a alcohol and tobacco and gambling and all that good stuff back before anybody ever imagined investing in in cannabis.
00:02:56.639 --> 00:02:59.840
And um, you know, you move forward a number of years.
00:03:00.000 --> 00:03:04.560
We had a uh a number of other uh active ETFs going.
00:03:04.719 --> 00:03:12.960
We had we're the we have the uh one of the very first active managed exemptive reliefs for ETFs.
00:03:13.120 --> 00:03:17.199
So we're kind of the longest tenured active ETF uh shop.
00:03:17.439 --> 00:03:21.439
And active doesn't mean overly active, it doesn't mean tactical.
00:03:21.599 --> 00:03:23.039
A lot of people need to understand this.
00:03:23.199 --> 00:03:25.039
It simply means it's not an index.
00:03:25.680 --> 00:03:28.479
And um, I'll skip ahead to cannabis investing.
00:03:28.960 --> 00:03:34.240
You don't want an index that forces rebalances every month or every quarter.
00:03:34.479 --> 00:03:43.199
You want an actively managed cannabis ETF, even if active means you're being inactive, you're not forcing rebalances.
00:03:43.439 --> 00:03:49.280
Active means uh you're simply not following an index, and you probably don't want to upset the Apple cart.
00:03:49.439 --> 00:03:50.639
But I digress.
00:03:50.960 --> 00:03:54.319
Uh, Advisor Shares has 17 funds.
00:03:54.719 --> 00:03:59.520
We have a number of different portfolio managers and some subadvisors of some of those funds.
00:03:59.759 --> 00:04:04.800
And a number of years ago, um, people started looking at cannabis investing.
00:04:04.960 --> 00:04:06.879
I said, no, that's probably not gonna work.
00:04:07.039 --> 00:04:10.240
There's not enough to invest in, it's not liquid enough.
00:04:10.560 --> 00:04:13.680
It progressed though, it progressed a little bit.
00:04:14.000 --> 00:04:21.600
So we were one of the very first applicants to the SEC for um a cannabis ETF.
00:04:22.160 --> 00:04:24.480
They asked us to get legal opinions.
00:04:24.879 --> 00:04:28.639
Um, we went to a third-party legal firm, it's not our regular council.
00:04:28.720 --> 00:04:34.800
We went to people that had specialties in investment companies and cannabis and got legal opinions.
00:04:35.040 --> 00:04:43.360
And um, then we got another legal opinion that invests about investing in cannabis and investing with total return swaps.
00:04:43.519 --> 00:04:54.160
We were the first company to do that in the cannabis space because that's the only darn way that you could invest in US plant-touching cannabis companies.
00:04:54.399 --> 00:04:55.920
So we invented that.
00:04:56.160 --> 00:05:04.879
Uh, now there's billions and billions, if not trillions, of dollars in in uh mutual funds and ETFs using uh total return swaps for other purposes.
00:05:05.120 --> 00:05:10.800
We only invented the part of using it as a substitute for investing directly in cannabis stocks.
00:05:11.120 --> 00:05:15.360
Um a lot of other cannabis funds have come and gone in that time.
00:05:15.439 --> 00:05:35.199
And we started off with our fund YOLO, which is now a global strategy, and then we uh about a year later invented uh MSOS as a US only strategy, and it happens to be by far, by far, the largest and most liquid uh cannabis ETF in uh in existence, floating somewhere around a billion dollars.
00:05:35.759 --> 00:05:37.920
And how big how big is YOLO, Dan?
00:05:38.639 --> 00:05:40.800
YOLO's uh under$50 million.
00:05:41.120 --> 00:05:55.439
It's it's a I don't know,$35,$40 million in assets, which is sizable for a cannabis ETF, but uh much, much smaller than um MSOS or MSOs, if you want to call it that.
00:05:55.759 --> 00:06:11.680
Uh because I think it just shows how many investors, how many people think that the opportunity, the opportunity that we're still, still waiting for is on the US side of the border rather than the more the global global reach strategy.
00:06:12.639 --> 00:06:13.600
Yeah, that's interesting.
00:06:13.759 --> 00:06:23.360
MSO or YOLO was first in a broader strategy with more diversification, which typically would you think earlier launch, broader mandate, typically more AUM.
00:06:23.439 --> 00:06:27.439
But in this case, people have honed in on that MSO opportunity as the one they want to target.
00:06:27.759 --> 00:06:30.319
Usually, and also uh performance.
00:06:30.480 --> 00:06:42.800
Um, you know, there's a lot of different time frames that anybody can look at, but for a large part of it is its existence, the Fun Yolo was the top performing cannabis ETF in existence.
00:06:42.959 --> 00:06:44.959
Again, various time frames.
00:06:45.439 --> 00:06:51.439
And um, that's really flipped in the past year once uh we got the executive order from Trump.
00:06:51.680 --> 00:06:58.959
Um, cannabis stocks US side really took a big pop uh in the fall with a great deal of volatility.
00:06:59.199 --> 00:07:00.639
Don't want to forget that.
00:07:00.959 --> 00:07:06.560
Um, but uh it's certainly cooled off and got stagnant in this calendar year.
00:07:06.879 --> 00:07:14.079
But uh MSO's has outperformed its sister fund, if you want to call it that, YOLO, um, more recently.
00:07:14.240 --> 00:07:14.879
Yeah.
00:07:15.199 --> 00:07:17.120
Well, Morgan continues working at the Kinks.
00:07:17.360 --> 00:07:23.839
Why don't I jump in and tell you about a little bit about one of about our great partner at FlowHub and thank them for the continued support of higher exchanges?
00:07:24.000 --> 00:07:29.600
They recently launched their 2020-2026 state of AI and cannabis retail report.
00:07:29.680 --> 00:07:31.839
And one statistic really jumped out to us.
00:07:32.000 --> 00:07:37.040
Nearly 50% of cannabis retailers are already using AI in some part of their business.
00:07:37.279 --> 00:07:38.319
Think about that for a second.
00:07:38.480 --> 00:07:41.519
Two dispensaries on the same street, same product, same taxes.
00:07:41.680 --> 00:07:47.199
One is leveraging AI to streamline streamline operations, with the other is relying on late nights and manual processes.
00:07:47.360 --> 00:07:50.879
Over time, that's a competitive advantage that's only going to widen.
00:07:51.120 --> 00:07:52.800
That's just one of the insights of the report.
00:07:52.879 --> 00:07:59.600
Head over to FlowHub.com, check out the state of AI and cannabis retail 2026, full of interesting data.
00:07:59.680 --> 00:08:01.680
I loved it, tons of practical insights.
00:08:01.839 --> 00:08:04.240
Check it out, Flowhub.com.
00:08:04.399 --> 00:08:06.480
Thank you for your support.
00:08:07.279 --> 00:08:10.879
So, Dan, let's talk a little bit more about the specifics of the funds.
00:08:10.959 --> 00:08:14.800
Um, you know, I'm I always start out saying, like, what's the opportunity set right here?
00:08:14.879 --> 00:08:15.680
Like, what can we do?
00:08:15.759 --> 00:08:16.959
What's the investable universe?
00:08:17.040 --> 00:08:20.639
To me, that's the first question in due diligence is where are you guys fishing?
00:08:20.720 --> 00:08:21.759
What pond are you in?
00:08:21.920 --> 00:08:25.920
So, Dan, help me understand what qualifies a company for MSOS and YOLO.
00:08:26.000 --> 00:08:28.639
Are there any hard criteria their investors should know?
00:08:29.839 --> 00:08:36.000
Well, uh again, YOLO was the first uh fund in existence be well before MSOs.
00:08:36.320 --> 00:08:59.919
And um it's interesting when we first filed a prospectus um with the SEC and we're speaking to the New York Stock Exchange, which is our listing venue for this fund, and talking to BNY, formerly known as BNY Mellon, uh, about custody and settling trades and so on.
00:09:00.080 --> 00:09:02.080
It set off a lot of bells.
00:09:02.240 --> 00:09:03.759
People had big concerns.
00:09:03.919 --> 00:09:06.720
How the heck can you invest in cannabis?
00:09:07.120 --> 00:09:17.440
And um that's even after Canada, or around the same time they legalized and these Canadian companies were able to listen to some of the exchanges, but it still set off all kinds of bells.
00:09:17.679 --> 00:09:39.919
So, for your criteria, we're not talking about a typical fund where our criteria is market cap, liquidity, size, cash flows, uh, you know, all this fundamental analysis you can do on a stock and writing a prospectus about what are the principal investment strategies, what are the constraints.
00:09:40.240 --> 00:09:50.000
No, the exchange, the New York Stock Exchange, and the bank were only concerned with what is legal and what they can custody.
00:09:50.240 --> 00:09:52.960
And we had to do a lot of negotiation with them.
00:09:53.120 --> 00:10:01.279
And as I said, we uh had to the SEC says, nope, you need to get a third-party legal opinion on this thing and supply it to us.
00:10:01.519 --> 00:10:04.320
And everybody came down to the same criteria.
00:10:04.559 --> 00:10:11.840
The stock better be listed on NICE or listed on Nasdaq or listed on the Toronto or even the Toronto venture.
00:10:12.000 --> 00:10:18.159
Later they expanded that to Australia for the small handful of stocks that that makes a difference for.
00:10:18.399 --> 00:10:19.759
Very small group.
00:10:20.080 --> 00:10:39.759
And it's interesting, Jesse, that in the years that followed, virtually all of the big wirehouses and banks and brokerages came out with formal cannabis policies that very much mirrored that same set of policy constraints.
00:10:40.000 --> 00:10:50.799
Um, if you aren't listed on Nasdaq, NYSE, NYC, or you know, the Toronto, you are blocked throughout BNY Mellon.
00:10:50.960 --> 00:10:58.879
Um same thing happened to Cowan, who used to be very big in the cannabis space and got acquired by TD Bank.
00:10:59.200 --> 00:11:13.679
And again, whether the constraints are behind the scenes or in front of the scenes, the the same thing goes for all the big bank wirehouses like B of A Merrill and Morgan Stanley Chase and JP Morgan and everybody else.
00:11:14.000 --> 00:11:18.799
So um the criteria you got to be listed on those exchanges.
00:11:19.120 --> 00:11:36.399
Then it's a pretty darn small universe of stocks that are listed on those exchanges and have even workable price, liquidity, trading volume.
00:11:36.799 --> 00:11:40.960
Um, and that's a small universe of stocks.
00:11:41.440 --> 00:11:52.159
Then we don't want the fund to be a market cap weighted index, and uh we're actively managed, even though we're not very actively managed.
00:11:52.320 --> 00:11:58.879
Um as a portfolio manager, we use a lot of outside information and get decide what we want to invest in.
00:11:59.200 --> 00:12:00.159
Simple as that.
00:12:00.320 --> 00:12:04.879
But it's really evolved over the last five years, as you guys can imagine.
00:12:06.159 --> 00:12:09.440
And does uplisting change that investable universe, Dan?
00:12:10.159 --> 00:12:10.639
100%.
00:12:11.120 --> 00:12:12.000
Yes, it does.
00:12:12.240 --> 00:12:14.080
Uplisting is a beautiful thing.
00:12:14.399 --> 00:12:26.639
But you know, the the three of us guy discussed that a little bit because it is a monumental, monumental occasion when TrueLeave got listed on the New York Stock Exchange.
00:12:26.799 --> 00:12:28.159
I mean, kudos to them.
00:12:28.320 --> 00:12:30.159
I mean, great job.
00:12:30.639 --> 00:12:37.440
But you guys and everybody else probably noticed they were pretty silent before that happened.
00:12:37.600 --> 00:12:41.759
There were some rumors out there, people thought there, I think that might be happening.
00:12:41.919 --> 00:12:44.080
I think there's discussions happening.
00:12:44.399 --> 00:12:51.120
But I think uh Kim Rivers and Christine and team, you know, didn't want to upset the Apple cart.
00:12:51.200 --> 00:12:55.279
They were treading very lightly, they wanted to uh see it to fruition.
00:12:55.759 --> 00:12:59.519
So what they did is they got listed on the New York Stock Exchange.
00:12:59.840 --> 00:13:04.879
Then they got in front of all the big investment firms in New York.
00:13:04.960 --> 00:13:16.320
And I I know they had the I know they've been having these meetings and uh because we talked to all those same people, but they didn't really get to go on a roadshow before the up listing.
00:13:16.639 --> 00:13:22.559
And then, hey, um, you know, Glasshouse followed just, you know, a week or two later with their listing.
00:13:22.639 --> 00:13:24.399
Uh again, a great thing.
00:13:24.639 --> 00:13:30.799
And it's frustrating as hell that the marketplace doesn't seem to really care.
00:13:30.960 --> 00:13:36.799
Yeah, I mean, we all know that it's a huge, huge occasion, but the outside market doesn't care.
00:13:36.879 --> 00:13:41.440
And we need to come back and talk about it, it goes to the state of cannabis overall.
00:13:41.759 --> 00:14:00.159
But in my fund, it is a wonderful thing, Jesse and Morgan, that I owned very large amounts of True Leave and very large amounts of Glasshouse, and I held it with four, count them four different swap counterparties.
00:14:00.240 --> 00:14:14.000
Yeah, um, registered with the SEC as security-based swap dealers and big firms, but I still had to spread out all that exposure because those firms don't want to own 10 or 15% of a company, any company.
00:14:14.159 --> 00:14:16.720
They don't want to own too much of True Leave or Glasshouse.
00:14:16.879 --> 00:14:19.039
I'm also spreading out my counterparty risk.
00:14:19.120 --> 00:14:24.080
I'm also, you know, juggling fees and capacity between all those firms, all sorts of things.
00:14:24.320 --> 00:14:36.320
So I got to take a very large amount of what I held via total return swap of True Leave and um turn it into stock.
00:14:36.559 --> 00:14:39.120
It's not much more complicated than that.
00:14:39.440 --> 00:14:46.000
I uh I sell swap, I buy stock at the same price at the same closing price.
00:14:46.159 --> 00:14:49.039
So I'm not uh upsetting the stock price.
00:14:49.120 --> 00:14:54.399
I'm not putting pressure on the bid and pressure on the ask to move tens of millions of dollars.
00:14:54.639 --> 00:15:00.799
I'm simply uh, you know, it's funny because some people say, do they really own the stock?
00:15:00.960 --> 00:15:02.799
Well, yeah, of course they own the stock.
00:15:02.960 --> 00:15:10.720
So at a swap counterparty, they own the stock to cover their backside over the swap that they're giving us.
00:15:11.120 --> 00:15:33.120
And I simply um sold the swap, bought the stock from them, had it settled to the the fund custody at BNY Mellon, and um that lowers costs, it uh improves you know ease and uh tax efficiency of the fund, all sorts of things.
00:15:33.360 --> 00:15:36.080
So uh did I did I move it all to stock?
00:15:36.399 --> 00:15:52.480
No, because the fund is so top heavy, so concentrated in its top five holdings that I own those positions directly via stock, and I still own them via total return swap.
00:15:53.200 --> 00:15:54.559
A lot of answer there for you.
00:15:54.799 --> 00:15:55.360
No, it's good.
00:15:55.440 --> 00:15:56.639
No, I think it's an important conversation.
00:15:56.720 --> 00:15:58.559
Welcome back, Morgan, in case you hear his voice again.
00:15:58.639 --> 00:16:02.080
Morgan, I'll keep cruising on the agenda until I get to position sizing and loop you back in.
00:16:02.159 --> 00:16:03.600
But feel free to jump in along the way.
00:16:03.759 --> 00:16:10.159
But I think we're having a valuable, nerdy conversation here, and I think that the you know, a lot of people, because we have a very nerdy audience in a good way.
00:16:10.240 --> 00:16:11.919
Um, I think a lot of folks will understand this.
00:16:12.000 --> 00:16:25.440
But just to be clear, what Dan's talking about is he wants to have a New York stock exchange listed vehicle because it attracts more investors, will have more liquidity, but he can't do that owning these cannabis names in a normal long fashion when they're on the OTC.
00:16:25.519 --> 00:16:34.000
And so what Dan is doing is he's they've done some financial engineering, which is rather clever, which is going through what they call a total return swap in order to get that exposure.
00:16:34.240 --> 00:16:40.320
So just to make sure everybody understands it, you bet you have MSOS over here, you'll have a counterparty in the middle.
00:16:40.399 --> 00:16:44.240
I'm gonna use Goldman Sachs, super blue chip, triple A rating, I think.
00:16:44.480 --> 00:16:47.279
And and then over here, you have the actual stock.
00:16:47.440 --> 00:16:51.840
So in the case of what Dan is doing, MSOS goes to Goldman Sachs.
00:16:51.919 --> 00:16:58.960
So my hypothetical example, Goldman Sachs issues a total returns drop swap in the amount of the exposure they have to the position.
00:16:59.200 --> 00:17:02.720
So let's say in this example, GTI is over here to the tune of$10 million.
00:17:03.200 --> 00:17:04.960
You don't actually own GTI in this case.
00:17:05.039 --> 00:17:06.720
Dan, correct me if I can do this wrong.
00:17:06.880 --> 00:17:09.680
You own the total return swap with Goldman Sachs.
00:17:09.759 --> 00:17:14.720
Goldman Sachs theoretically covers that position by owning the long position of the stock.
00:17:14.880 --> 00:17:23.680
They return to you the performance of GTI minus the cost of the total return swap, which we can get into later.
00:17:23.839 --> 00:17:25.599
And that's what your end return is.
00:17:25.680 --> 00:17:31.839
So it's a little bit of clever financial engineering, but it has two, in my opinion, risks or downside for all the benefits.
00:17:32.000 --> 00:17:34.480
One is that you have the cost, which we can get into later.
00:17:34.559 --> 00:17:41.680
And then number two, which I don't want to, you know, uh, you know, steal too much from the agenda, is you do have that counterparty risk, which I think is an important thing to understand.
00:17:41.920 --> 00:17:43.599
Did I get that mostly right, Dan?
00:17:44.240 --> 00:17:45.839
Yeah, very much right.
00:17:46.000 --> 00:17:57.359
And you know, you said we're uh, you know, being nerdy on this, but I really want people to understand what the fund does, what the fund is, how the fund works.
00:17:57.599 --> 00:17:59.279
So it's important to understand this.
00:17:59.519 --> 00:17:59.839
100%.
00:18:00.400 --> 00:18:06.079
Um a little while ago, I just got off a uh a webinar we were doing for a group of investment advisors.
00:18:06.160 --> 00:18:11.359
And one of the questions was well, do institutions use total return swaps?
00:18:11.599 --> 00:18:13.759
Are total return swaps common?
00:18:14.000 --> 00:18:15.279
Yeah, very common.
00:18:15.359 --> 00:18:26.880
There's trillions of dollars used in total return swaps, and it's public information that you guys can look up uh who are registered security-based swap dealers.
00:18:27.039 --> 00:18:32.880
Um, that's uh SEC law that changed, or rules, excuse me, not law that changed a few years ago.
00:18:33.119 --> 00:18:40.960
And yeah, Goldman Sachs and all that every other large wirehouse and um underwriter is uh a security-based swap dealer.
00:18:41.200 --> 00:18:55.839
So um, yeah, the bottom line is when we talked to the New York Stock Exchange, when we talked to the Bank of New York Mellon, I wanted to have an investment company, ETF, same as a mutual fund.
00:18:56.319 --> 00:19:06.160
We cannot buy and settle and custody GTI stock simply because it's listed on a secondary exchange in Canada.
00:19:06.319 --> 00:19:12.480
It's only traded OTC in the US, and it is on their formal cannabis policy.
00:19:12.640 --> 00:19:14.240
That's a blocked stock.
00:19:14.480 --> 00:19:16.319
For now, I think that's all changing.
00:19:16.400 --> 00:19:26.880
We'll talk more about that in the future, but for now, GTI is um a blocked stock, it is not allowed to be custodied at Bank of New York Mellon.
00:19:26.960 --> 00:19:29.359
So we use a total return swap.
00:19:29.519 --> 00:19:33.440
And some people say, Well, how does the fund price it?
00:19:33.680 --> 00:19:36.079
Well, I'm looking at my screen right now.
00:19:36.400 --> 00:19:39.200
GTBIF is exactly$7.
00:19:40.319 --> 00:19:44.160
It's$699 bid by 700 ask.
00:19:44.400 --> 00:19:58.559
If it ends the day like that, that is how the fund prices GTI, exactly as if we owned 24 million shares and change of GTI, which the fund does.
00:19:58.799 --> 00:20:04.559
Um, the G the total return swap is exactly as we as if we own the stock.
00:20:04.720 --> 00:20:07.839
Now, there are trillions of dollars in other funds.
00:20:08.079 --> 00:20:12.559
Thousands of funds use total return swaps, or usually use them for other reasons, though.
00:20:12.640 --> 00:20:14.240
They're usually using them for leverage.
00:20:14.400 --> 00:20:14.799
Yes.
00:20:14.960 --> 00:20:21.440
Um, um, two times funds, inverse funds, all kinds of exotic things, basket swaps.
00:20:21.759 --> 00:20:32.160
We're the people that invented using those swaps exactly on a one-for-one basis, as if we owned that cannabis company directly.
00:20:32.400 --> 00:20:45.920
Nothing more, nothing fancy, not leveraged, not exotic, just a way to hold 24 million shares of GTI indirectly through those counterparties that you mentioned.
00:20:46.160 --> 00:20:46.559
Yeah.
00:20:46.799 --> 00:20:48.079
No, it's clever engineering.
00:20:48.160 --> 00:20:50.559
I used to hit the nail on the head there, Dan.
00:20:50.640 --> 00:20:52.720
I used to run a leveraged uh fund of hedge funds.
00:20:52.799 --> 00:20:53.359
And that's what we did.
00:20:53.519 --> 00:20:57.920
We used two to one leverage and we used a total return swap with Goldman and Credit Suisse to accomplish that.
00:20:58.160 --> 00:21:00.160
And that was back in 2005.
00:21:00.319 --> 00:21:01.680
And so it's more common.
00:21:01.920 --> 00:21:05.119
Yeah, it's kind of cool to see it 20 years later, you know, engineered in this way.
00:21:05.279 --> 00:21:12.079
But let's move ahead and talk a little bit about what I think maybe all the stuff matters, but what really matters to me is the stock selection process.
00:21:12.240 --> 00:21:17.599
Like, how do you, you know, I think people are curious, you know, how would you end up with the position positions that you do?
00:21:17.759 --> 00:21:19.440
Like, what do you look for in companies, Dan?
00:21:19.599 --> 00:21:26.079
When you're looking across, let's just take MSOS, you know, because I think that's the bulk of the bulk of the assets and makes the conversation a little bit easier.
00:21:26.160 --> 00:21:30.559
But when you're looking at that investable universe, where do you start and what are you looking for in these companies?
00:21:31.039 --> 00:21:34.640
Well, that investable universe is very limited.
00:21:34.720 --> 00:21:36.960
It's a limited universe of stocks.
00:21:37.200 --> 00:21:53.759
And as these funds have evolved, um, you know, the fund MSOS, Advisor Shares Pure US Cannabis ETF, has a mandate to invest primarily in US cannabis related companies.
00:21:54.079 --> 00:21:59.839
Now, at one point we we held some of the the REITs, we held some of the ancillary companies.
00:22:00.319 --> 00:22:02.400
So we had some other stuff.
00:22:02.640 --> 00:22:17.200
I really quickly learned that your average investor or advisor wanted this company, this fund, excuse me, to actually hold what its ticker implies, MSOs.
00:22:17.839 --> 00:22:25.440
So I thought, you know, if that's what people really want and are investing in this thing, that's what we should give them.
00:22:25.759 --> 00:22:28.480
So I made a portfolio manager decision.
00:22:28.640 --> 00:22:36.960
Even though we could hold ancillary companies, we could hold the REITs, I wanted this MSOs fund to be pretty pure multi-state operators.
00:22:37.200 --> 00:22:47.039
Well, now, Jesse and Morgan, you know, that's a pretty darn limited universe of not only who they are and what they are, they're publicly traded.
00:22:47.119 --> 00:22:48.480
Can I even invest in them?
00:22:48.640 --> 00:22:51.200
But which ones are large enough and liquid enough?
00:22:51.519 --> 00:23:11.680
So um there's been changes over the last couple of years, but gosh, Cure Leaf, TrueLeaf, and GTI are now pretty far and away the largest, most liquid, um, you know, most expected, if you will, which still matters, uh, tier one companies.
00:23:11.759 --> 00:23:13.599
So those are the top three holdings.
00:23:13.839 --> 00:23:18.160
But um, Glasshouse is now the number four holding.
00:23:18.319 --> 00:23:26.079
Um, and that's partially through position sizing by me and partially just by appreciation.
00:23:26.400 --> 00:23:29.680
You know, stock A goes up more than stock B.
00:23:29.759 --> 00:23:34.000
It's now a heavy more heavily weighted port uh position in the portfolio.
00:23:34.480 --> 00:23:43.039
And with this fund, I've said over and over again, we don't want to be very active.
00:23:43.599 --> 00:23:58.480
I don't think anybody really wants me pounding the heck out of the bid or the ask on any of these stocks right now, um, as we are waiting on federal reforms to hopefully make these uh volumes go up and make these things heavily traded.
00:23:58.640 --> 00:24:13.279
So if I see a stock like Glasshouse through appreciation, through stock performance turning into a heavier weighted position in my fund than Verano or Cresco Labs, I've let it ride.
00:24:14.000 --> 00:24:15.279
Does that make sense?
00:24:15.599 --> 00:24:16.240
It does.
00:24:16.480 --> 00:24:25.039
And so, like amongst those top few names, Dan, like how how do you arrive at curely, for example, being a bigger weighting than GTI and truly?
00:24:25.200 --> 00:24:28.240
Like, what do you like about that business that justifies the waiting?
00:24:28.880 --> 00:24:29.359
Yep.
00:24:29.599 --> 00:24:39.200
And that's where you again you get into what is an actively managed fund and what is an index fund, and so on, because that's a very common question, Jesse, and I appreciate it.
00:24:39.519 --> 00:24:46.319
And it's partially portfolio manager preference, and again, it's partially appreciation.
00:24:46.960 --> 00:25:06.400
So there are index funds out there, and there was an index fund in um in cannabis land that was really pissing people off a couple of years ago doing their quarterly rebalances and um really upsetting the Apple cart, uh, rebalancing pretty illiquid stocks.
00:25:06.640 --> 00:25:08.640
So that's one we don't want to do.
00:25:08.960 --> 00:25:14.640
Two, as an investor, um, everybody has a brokerage account.
00:25:14.960 --> 00:25:16.240
Pull up a darn chart.
00:25:16.400 --> 00:25:22.079
Look at Cura Leaf versus GTI over the last year, over the last year and a half.
00:25:22.319 --> 00:25:26.640
Um, one of those has greatly outperformed the other one.
00:25:27.279 --> 00:25:35.359
And um it has so again, the number one position in the fund is CuraLeaf right now.
00:25:35.599 --> 00:25:48.400
A big part of that is appreciation, it is simple stock appreciation, and I have chosen not to do a forced rebalance and trim that.
00:25:48.880 --> 00:25:51.920
I've let it ride and it's risen to the top.
00:25:52.160 --> 00:25:53.599
And let me pause you there.
00:25:55.200 --> 00:25:55.599
Oh, go ahead.
00:25:55.680 --> 00:25:55.839
Go ahead.
00:25:55.920 --> 00:25:57.200
I was gonna I was just gonna pause you there.
00:25:57.279 --> 00:26:07.599
Like, but there are like my old job was hedge fund due diligence and interviewing hedge fund managers, and there's some people that when will let winners ride like that, almost a momentum trade in some ways.
00:26:07.759 --> 00:26:16.960
Then there's some people that will use that as an opportunity to rebalance and say, okay, Kierleaf's ridden, but it went from one-time sales to three-time sales, making up metrics.
00:26:17.279 --> 00:26:18.720
GTI is lagging.
00:26:18.799 --> 00:26:26.880
So why don't I sell that winner and rotate into something that might be more over undervalued as opposed to keeping that momentum trade?
00:26:27.279 --> 00:26:28.799
That's a that's a great point.
00:26:28.880 --> 00:26:53.920
And this is where we get into cannabis investing has turned into one of the strangest investments and different things in a portfolio manager mind than I ever imagined, because you guys probably know that I also manage um AdvisorShares Psychedelics ETF um plug, ticker symbol, P S I L.
00:26:54.640 --> 00:27:06.640
Um and Jesse just uh a couple weeks ago announced Eli Lilly acquiring our largest holding a tie Beckley.
00:27:07.599 --> 00:27:13.680
And uh I sure as hell trimmed off some of that winter immediately.
00:27:14.079 --> 00:27:29.200
Um I have gotten very, very inactive in managing MSOs very purposely because um I think we're all in a waiting game right now.
00:27:29.359 --> 00:27:36.240
We are waiting on announcements of you know the the briefs that are due next month from the ALJ.
00:27:36.960 --> 00:27:48.240
Um, everybody's in a weird waiting game, and I am choosing to sit on my hands for the most part in MSO's management.
00:27:48.400 --> 00:27:50.880
I'm even more active in YOLO management.
00:27:51.119 --> 00:27:58.960
Um, I have turned more inactive, very purposely so in MSOs, because I also like the makeup of the fund right now.
00:27:59.119 --> 00:28:03.519
I am perfectly happy having CuraLeaf and a true leaf right behind it.
00:28:03.759 --> 00:28:11.680
GTI a little bit lower weighted, and I'm happy that uh Glasshouse has risen into the number four position.
00:28:11.920 --> 00:28:14.480
So I'm eyeballing these all the time.
00:28:14.640 --> 00:28:18.000
I do have the ability to make changes in these at any time.
00:28:18.400 --> 00:28:25.599
Um, you know, at some point I have to decide when I'm gonna peel off some C21 because that stock's gonna go away.
00:28:25.839 --> 00:28:27.039
But you know what?
00:28:27.359 --> 00:28:29.759
Are these stocks doing great lately?
00:28:30.000 --> 00:28:31.680
Are they doing lousy lately?
00:28:31.920 --> 00:28:39.680
Is having a um a low risk position uh in a company like C21 that's getting acquired a good thing in the portfolio right now?
00:28:39.839 --> 00:28:41.759
Yeah, it's a good thing in the portfolio.
00:28:42.000 --> 00:28:51.920
So yeah, I am um you know perfectly happy with the current makeup of the weighting of the holdings in uh MSOs right now.
00:28:52.240 --> 00:29:02.640
If I had money burning a hole in my pocket, then I might add to different stocks than adding over the portfolio overall.
00:29:02.799 --> 00:29:15.359
That's a separate question, but tactically rebalancing selling stock stock A and buying stock B, I am very purposely choosing not to do that.
00:29:15.519 --> 00:29:28.079
And I'm doing that more than I have ever done in a fund before, or I'm doing in any of our other funds that I manage right now because of this wacky world of cannabis investing we're in right now.
00:29:28.319 --> 00:29:30.400
Yeah, I feel like we're in Twilight Cup.
00:29:30.720 --> 00:29:31.119
Right.
00:29:31.599 --> 00:29:34.720
Now, um, let me go back to CuraLif.
00:29:35.759 --> 00:29:42.880
I still think CuraLeaf might have more torque than a couple of the other companies.
00:29:43.039 --> 00:29:49.920
Now, torque is a word that people um in cannabis land wanted to start using over the last six months because they thought it sounded cool.
00:29:50.160 --> 00:29:56.160
Um, but it's uh which of these companies might have more upside when things change.
00:29:56.319 --> 00:29:58.880
We're all waiting for things to change.
00:29:59.039 --> 00:30:04.400
Uh, and it might be a slower process than any of us hoped for um when those changes happen.
00:30:04.480 --> 00:30:06.079
It's still going to be a process.
00:30:06.400 --> 00:30:14.240
But this is when you get into just personal preference and my own opinions as a portfolio manager.
00:30:14.799 --> 00:30:39.759
If we have the real rescheduling that we think is all coming, if we have the ability to get uh listed on NASDAQ or the New York Stock Exchange, I happen to like Cure Leaf a great deal just for its look and feel and institutional acceptability and view from the outside world.
00:30:40.000 --> 00:30:49.440
And we're living in a world right now, guys, where we have a bunch of cannabis investors that are pretty up to speed and know cannabis investing.
00:30:50.160 --> 00:30:53.119
And then we have the rest of the population.
00:30:53.279 --> 00:30:57.039
And our cannabis world is pretty damn small and pretty damn tight.
00:30:57.279 --> 00:31:10.400
I'm talking about your neighbors, co-workers sometimes, anybody else that's outside of our um cannabis communication, they are clueless about the opportunity happening in cannabis right now.
00:31:10.559 --> 00:31:12.880
And it's not much different.
00:31:13.119 --> 00:31:26.079
And I know from experience that Kim and Christine and team have been meeting with uh major firms in New York, and they're all saying, and this sounds great, and they're sitting and waiting still.
00:31:26.319 --> 00:31:27.839
Everybody is waiting.
00:31:28.079 --> 00:31:33.599
Even the companies like uh Glasshouse and TrueLib that just got listed on the New York Stock Exchange.
00:31:33.759 --> 00:31:40.240
Um, Wall Street doesn't care, individual investors don't care, nobody cares right now.
00:31:40.400 --> 00:31:53.119
Everybody's waiting, and I'm pointing out this whole long story because when that changes, I think unfortunately, GTI has gotten off of a lot of people's radar.
00:31:53.279 --> 00:31:58.000
It was darling two or three years ago, always beat as the highest quality.
00:31:58.240 --> 00:32:01.839
Everybody still agrees they got the best balance sheet out there.
00:32:02.240 --> 00:32:10.160
But I think uh Cure Leaf is the big winner in outside people's eyes of as the biggest cannabis company.
00:32:10.319 --> 00:32:13.759
I think that gives it torque to new investment.
00:32:14.640 --> 00:32:15.519
What do you think?
00:32:15.680 --> 00:32:21.039
So if you guys can hear me now, sorry for the technical issues, but uh I'm back without delay.
00:32:21.279 --> 00:32:21.920
Yeah.
00:32:22.400 --> 00:32:30.960
Um so interesting point because I was gonna ask have you noticed any liquidity changes with True Leave and Glasshouse being listed?
00:32:31.119 --> 00:32:40.240
Because I've been hearing similarly, is that you know, yes, they're listed, but it hasn't really resulted in much flow activity change.
00:32:40.400 --> 00:32:50.319
But you know, has it have you experienced that as at least with like you said, I know you're you've been very inactive, and I've I've watched that jungle java does a great job keeping tabs on it and reporting.
00:32:50.400 --> 00:32:56.160
And like a year ago, you were still you know seemed like there was more work, and now you're to your point in this waiting game.
00:32:56.319 --> 00:32:58.559
But should like new capital come in?
00:32:58.720 --> 00:33:03.039
You know, have you noticed a difference with your ability to trade in those names?
00:33:03.119 --> 00:33:07.680
Like truly classes specifically being the I mean, great question.
00:33:08.079 --> 00:33:08.720
Great question.
00:33:09.039 --> 00:33:11.519
And um, no, for the most part, I agree.
00:33:11.599 --> 00:33:18.799
It's just frustrating as hell that the outside world doesn't seem to care that those stocks are listed on the New York Stock Exchange.
00:33:18.960 --> 00:33:21.039
Yet, are they now more tradable?
00:33:21.119 --> 00:33:22.079
Are they more liquid?
00:33:22.319 --> 00:33:22.960
Absolutely.
00:33:23.119 --> 00:33:35.599
And I'm looking at my screens right now, and um, you know, CuraLeaf, they did the reverse split, so they're eight something dollars, and True Leave was eight something dollars on their own already.
00:33:35.759 --> 00:33:38.799
True Leave has traded 800,000 shares today.
00:33:38.960 --> 00:33:49.920
That's good for TrueLeave, that's more volume than we ever used to see, or um, on an average day, regular days, than we used to see normally on True Leave.
00:33:50.079 --> 00:33:51.839
So, yeah, there's more volume trading there.
00:33:52.000 --> 00:33:56.240
Glass has traded almost 400,000 shares today.
00:33:56.559 --> 00:33:59.440
So, you know, a little bit more volume.
00:34:00.079 --> 00:34:14.559
Um, again, they are listed on the New York Stock Exchange, and now they are technically allowed to be traded and custoded at a lot more venues, like throughout BNY Mellon and Pershing, for instance.
00:34:14.800 --> 00:34:19.199
Uh, you know, they were always available at Fidelity and Schwab and a few places.
00:34:19.360 --> 00:34:25.039
But yeah, true leaving glasshouse are now available through a lot more brokerages and venues.
00:34:25.360 --> 00:34:30.880
But as you kind of alluded to, Morgan, and I said, most people don't care.
00:34:31.119 --> 00:34:38.559
There's just not that outside outside investors, it hasn't hit the mainstream news.
00:34:38.719 --> 00:34:44.159
No one's really taking notice or or making a difference, and or we're in this waiting game.
00:34:44.320 --> 00:34:53.280
So, yeah, more liquidity, more tradability, but not the real boost that everybody would hope for.
00:34:53.599 --> 00:35:00.079
What was the are you hearing feedback as what is the new goalpost that Wall Street's waiting on?
00:35:01.440 --> 00:35:02.800
The next announcements.
00:35:03.119 --> 00:35:07.840
It's really it's really the the next step of the uh of the rescheduling.
00:35:08.159 --> 00:35:14.800
And again, it technically doesn't matter to Glasshouse and True Leave, but it matters.
00:35:15.119 --> 00:35:15.360
Right.
00:35:15.679 --> 00:35:17.679
It's more just the continued process.
00:35:19.119 --> 00:35:20.159
Yeah, yeah, yeah.
00:35:20.320 --> 00:35:30.079
Yeah, I think I think it goes back to guys like this comment that I say all the time, uh, you know, say it for you, Dan, that a small cap growth manager said to me two years ago, explained everything in cannabis was an analyst.
00:35:30.159 --> 00:35:33.920
He said, Very cool story, Jesse, but how do I play the game if I don't know the rules?
00:35:34.159 --> 00:35:36.639
And that always struck me, and that's why I say it so much on the show.
00:35:36.719 --> 00:35:43.119
And I don't think it's different today, like these companies up listed, and if you're a sophisticated investor, like you still don't know how this shakes out.
00:35:43.199 --> 00:35:44.320
You don't know what the rules are.
00:35:44.480 --> 00:35:45.519
So you do one of two things.
00:35:45.679 --> 00:35:49.599
Either you make a bet in what you think the rules will be, which everyone's been burned on 97 times.
00:35:49.679 --> 00:35:56.079
So there's so people don't want to move ahead of these things, or you chill out for a while, figure out what the rules are, and say, I'll make a decision in three months.
00:35:56.239 --> 00:35:57.840
Not the biggest, not big, not a big deal to me.
00:35:57.920 --> 00:35:59.119
I'll just wait and see what happens here.
00:35:59.280 --> 00:36:00.400
And I think that's where we are.
00:36:00.559 --> 00:36:01.920
I don't think people hate those companies.
00:36:02.000 --> 00:36:03.760
I don't even think it's necessarily apathy.
00:36:03.920 --> 00:36:09.519
I think it's a calculated decision to say, tell me, wait till wait till I know the rules, and then I can decide if I want to play the game.
00:36:09.840 --> 00:36:11.440
Uh 100%, 100%.
00:36:11.760 --> 00:36:14.239
So people are waiting on those rules.
00:36:14.480 --> 00:36:22.800
And and part of what you just said, Jesse, was uh after they've been wrong 97 times, how many times has safe banking been floated?
00:36:23.039 --> 00:36:30.000
How much did these stocks pop when Joe Biden was running for president and said they were going to resum you know legalize?
00:36:30.159 --> 00:36:36.239
Uh, you know, how many times, to be blunt, have cannabis investors been burned?
00:36:36.559 --> 00:36:45.920
And it doesn't matter if you're Wall Street or you are an individual investor, um, they've been burned.
00:36:46.159 --> 00:36:52.079
So, yes, they're absolutely going to wait for we call it clarity.
00:36:52.239 --> 00:36:53.679
We're gonna wait for clarity.
00:36:54.000 --> 00:36:57.360
Um, and so much more is to be determined.
00:36:57.599 --> 00:37:00.000
Um, now here's another thought for you for you guys.
00:37:00.079 --> 00:37:01.679
Let's see what you think about this.
00:37:02.159 --> 00:37:05.280
Um for people that say, where's the growth?
00:37:05.599 --> 00:37:09.679
Because are these fast growth companies now or do they look great?
00:37:09.840 --> 00:37:21.519
If you're a micro cap investor or even a small cap investor, um, so people hate it if I call uh call these cannabis companies micro cap because a few of them are small caps.
00:37:21.920 --> 00:37:24.079
You expect explosive growth.
00:37:24.239 --> 00:37:32.000
You expect explosive, fantastic looking financials if you're a small capper or micro cap investor.
00:37:32.239 --> 00:37:40.000
We don't really have that among these cannabis investors, the cannabis companies, excuse me.
00:37:40.239 --> 00:37:41.840
So where's the growth come from?
00:37:42.159 --> 00:37:45.360
Well, we got to get 280e to go away.
00:37:45.440 --> 00:37:46.719
I mean, really go away.
00:37:46.880 --> 00:37:51.920
I mean, it's gone away for uh glasshouse, sort of, yeah.
00:37:52.079 --> 00:37:55.760
And it's gone away for a big part of True Leave.
00:37:56.000 --> 00:37:59.920
They had to you know separate out the uh adult east states.
00:38:00.239 --> 00:38:03.599
Um, but we need 280E to go away.
00:38:03.679 --> 00:38:05.599
That adds a lot to the to the balance sheet.
00:38:05.679 --> 00:38:17.760
You know, we can talk about uh how they're treating those tax uh provisions, but we need um all the CBD shops and the hemp business to go away.
00:38:17.920 --> 00:38:22.079
And yes, I know there's people in states that need and want products.
00:38:22.559 --> 00:38:30.000
I hope that state licensed legal dispensaries get to continue to expand in places that they don't exist yet.
00:38:30.239 --> 00:38:49.519
But yeah, it's been a really unfair playing field with the billions of dollars in sales that are going into CBD slash hemp-based products that we hope and think most of will get redirected into licensed legal, state legal dispensaries.
00:38:49.679 --> 00:38:52.719
That's really a 2027 story, probably.
00:38:53.039 --> 00:38:56.159
So um and then we got additional states coming online.
00:38:56.480 --> 00:39:03.039
So I think the actual growth numbers of the underlying companies might look a whole hell of a lot better in the future.
00:39:03.599 --> 00:39:14.719
And that's another little side story besides what you already mentioned, Jesse, of these people need clarity, they need to know the rules, they need to know how it's gonna work before they're really committed to investing.
00:39:20.159 --> 00:39:22.000
Do we lose Morgan again?
00:39:23.280 --> 00:39:24.480
Uh-oh, Morgan.
00:39:25.280 --> 00:39:26.480
Morgan looks discouraged.
00:39:26.800 --> 00:39:27.599
He's very discouraged.
00:39:31.920 --> 00:39:34.960
Um, you're good.
00:39:35.039 --> 00:39:36.559
Yeah, I can I I I can talk for a little bit.
00:39:36.639 --> 00:39:40.559
We've got like just five you know, five minutes or so um left here, Dan.
00:39:41.119 --> 00:39:46.639
I think you know, uh one helpful thing uh you know I'd like to get into real quick would be on the risk management side.
00:39:46.800 --> 00:39:50.079
You know, the older I get, I'm super old, guys, I'm 51.
00:39:50.480 --> 00:39:55.679
And I feel like the older you get, you realize life and investing is first and foremost a risk management game.
00:39:55.840 --> 00:39:59.760
If you can cut those losses and get some wins on the upside, things work out pretty well.
00:39:59.920 --> 00:40:12.960
But where you get really buried is that something goes down, like we've seen in you know, in cannabis, like there's been you know a 90% drawdown in uh you know, MSOS picked peaked on February 10th, 2021, I think$55 a share, Dan.
00:40:13.119 --> 00:40:17.280
And here we are now, you know, back down around four, back down around four bucks.
00:40:17.440 --> 00:40:18.880
And so that's when the sector at large.
00:40:19.039 --> 00:40:26.320
So I'm not saying, you know, I'm not assigning responsibility for you for that whole macro change, but in your portfolio, yeah, I see that.
00:40:26.480 --> 00:40:27.840
I know they're X handles.
00:40:28.239 --> 00:40:33.119
Um and so I'm curious, like in the in the portfolio, like how do you think about risk management?
00:40:33.199 --> 00:40:39.440
When kind of everything is going against you, like how do you decide when to cut an individual company or when to start trimming a name?
00:40:40.239 --> 00:40:50.719
Um, and again, I'll I'll go back to something I was sort of giving thoughts on earlier that managing the fund MSOS is unlike anything I've you know done in other funds.
00:40:50.960 --> 00:41:07.280
Um, you know, we have the psychedelics fund, and uh about a year and a half ago we launched uh uh HVAC, which has been a great fund, um heating, ventilation, air conditioning, and it is a picks and shovels play on AI and data centers.
00:41:07.599 --> 00:41:10.719
So we have um this industrials fund.
00:41:10.960 --> 00:41:13.840
I'm only mentioning that, besides plugging ourselves.
00:41:14.000 --> 00:41:21.760
I'm mentioning that because I can manage those funds much more tactically.
00:41:22.400 --> 00:41:42.719
I have uh you know criteria that I very much use that looks at certain analysts that have high ratings, I look at chances of earnings revisions, I look at chances of earnings beats, and we have some quantitative tools to try to use those things.
00:41:43.039 --> 00:42:02.480
And so if one of my stocks is pops up to the top of the list that I have on the watch list, and it's one of the stocks that I own, I will completely tactically sell that stock, buy a new stock, add it to the portfolio, and I can do it as an actively managed fund on any schedule.
00:42:02.719 --> 00:42:06.880
So in any given week, I am making changes tactically.
00:42:07.760 --> 00:42:20.719
Psychedelics, I have a smaller universe, so I'm rarely completely changing a position, but I'm rather constantly adding to certain positions, trimming positions in the heating in the HVAC fund.
00:42:21.199 --> 00:42:33.199
I am every week killing off some positions entirely, adding some new positions, but I also do do it carefully for tax purposes to not not uh cause taxes.
00:42:33.360 --> 00:42:35.519
Do I do any of that in MSOs?
00:42:35.840 --> 00:42:37.519
No, I really don't.
00:42:37.840 --> 00:42:43.760
I really don't uh because limited universe of stocks, I like the makeup.
00:42:44.480 --> 00:42:58.880
Um if it's in the top five holdings or so, which I'll go ahead and rattle off CuraLeaf, True Leaf, GTI, Glasshouse, Toronto, Cresco, Terrace End.
00:42:59.920 --> 00:43:03.920
If one of those stocks goes to zero, we're all fucked.
00:43:04.239 --> 00:43:16.400
Sorry for the word, but uh um does anybody in their right mind think that I can sell 24 million shares of GTI in any short period of time or want me to try?
00:43:16.800 --> 00:43:17.119
No.
00:43:17.840 --> 00:43:20.320
Now, here's another thing.
00:43:20.800 --> 00:43:30.159
This fund that owns virtually all the tradable multi-state operators in the US, it owned cannabis.
00:43:31.440 --> 00:43:37.679
Now, was everybody buying cannabis um formerly Columbia Care four and five years ago?
00:43:38.079 --> 00:43:39.920
Yeah, everybody was.
00:43:40.800 --> 00:43:43.760
It was going down, it didn't look good.
00:43:44.639 --> 00:43:51.679
Um, but I owned 20 or 30 million shares of it because this is a billion-dollar MSOs fund.
00:43:53.280 --> 00:43:55.760
Jesse, do you think I should have sold it?
00:43:56.239 --> 00:43:56.880
Yes.
00:43:57.360 --> 00:43:58.480
Who would have bought it?
00:43:59.199 --> 00:44:11.920
Yeah, so we You're saying, Dan, is you kind of get for lack of better terms stuck in some of these positions, your forefronts, your airs, your cannabis, your gold floors, where it's like you're not a dumb guy, like you'd like to get out of it, but getting out of it, are you saying it would just crush the name that'd be counterproductive?
00:44:12.239 --> 00:44:13.840
It would crush the name.
00:44:14.079 --> 00:44:29.119
Um would anybody have invested in cannabis over the last five years if we had a time machine or we knew where we'd be sitting right now.
00:44:29.760 --> 00:44:30.880
All those questions.
00:44:31.039 --> 00:44:32.159
No, of course not.
00:44:32.400 --> 00:44:34.719
Of course, it'd be nice to go back in time.
00:44:34.960 --> 00:44:38.559
Uh hindsight's 2020 very, very, very easily.
00:44:38.960 --> 00:44:46.320
But um uh to go to these questions, I'd look at my my screen right now.
00:44:46.639 --> 00:44:49.840
Here's something that's I I think it's really relative.
00:44:50.719 --> 00:44:57.840
Today, today, CureLeaf is down 5.7 million in the portfolio right now.
00:44:58.719 --> 00:45:01.519
True leave is down 4.6 million.
00:45:02.159 --> 00:45:04.320
GTI is up 2.1 million.
00:45:04.400 --> 00:45:05.519
That's nice.
00:45:06.559 --> 00:45:22.719
So when cannabis was going to zero, its entire vow entire loss for the past year was less than on one day's up or down for any of the stocks I just mentioned.
00:45:23.119 --> 00:45:29.679
I'm saying that again, it's hard to understand, like, oh, why'd you ride cannabis to zero?
00:45:30.239 --> 00:45:32.159
Because it was immaterial to the fund.
00:45:33.280 --> 00:45:36.559
Um losing two million on cannabis.
00:45:39.440 --> 00:45:45.679
Losing two million dollars on cannabis um was basically ish.
00:45:46.320 --> 00:45:50.719
It was unsellable, pretty immaterial to the fund going up and down every day.
00:45:50.960 --> 00:45:55.039
Now, if I had hindsight, I would have sold the hell out of it three years ago.
00:45:55.280 --> 00:46:05.599
So another way of saying it, you're just kind of like to your point, is like the top cohort is pretty well anchored and you're letting the market kind of drive it from there.
00:46:05.760 --> 00:46:16.880
So, like some of these ones that you're just you know, if they drop out, it's it's not like that bad that bad for the front and letting the winners just continue to push to the top.
00:46:17.280 --> 00:46:18.559
Now I'm gonna skip ahead.
00:46:18.719 --> 00:46:26.800
Uh you know, Jesse uh you know told me some questions he might want to ask me today, and he hasn't stuck to it very well at all, but now this is a great discussion.
00:46:27.039 --> 00:46:28.639
Um I'm looking at the port.
00:46:29.119 --> 00:46:37.840
I'm looking at the portfolio right now, and I only have$3.2 million worth of Vario.
00:46:38.800 --> 00:46:41.679
I would love to have more Vario at this point.
00:46:41.920 --> 00:46:45.280
Um, Vario has only traded 15,000 shares today.
00:46:45.440 --> 00:46:50.639
It's turning into a serious tier one company for its footprint and its reach and everything else.
00:46:50.719 --> 00:46:54.239
We're doing a great job, but it doesn't trade much at all.
00:46:54.480 --> 00:47:00.159
If I have money burning, if I have money in my hand, that's a stock I might add to.
00:47:00.719 --> 00:47:03.679
Um I go down the list a little bit further.
00:47:03.840 --> 00:47:10.559
I got Planet 13 in there, and I got tens of millions of shares of Planet 13.
00:47:10.639 --> 00:47:14.159
It's not really bought or sellable, so I'm glad they're merging into Vario.
00:47:14.559 --> 00:47:15.760
That's a neat thing.
00:47:16.000 --> 00:47:21.199
Um Ascend, I don't have much of that, but I possibly would add more to that.
00:47:21.360 --> 00:47:23.360
But then you go down the portfolio.
00:47:23.760 --> 00:47:25.360
Oh, Vexed is pretty solid.
00:47:25.440 --> 00:47:30.159
I have less than a million dollars worth of Vexed, it's only 18 cents a share.
00:47:30.480 --> 00:47:33.360
Pretty good company, pretty good operations.
00:47:33.760 --> 00:47:37.360
That's a stock I could possibly add more to with cash.
00:47:37.599 --> 00:47:47.360
But there's other companies in here that are in here, they're representative of the overall MSO space, but I might not want to buy them today.
00:47:47.599 --> 00:47:55.119
If somebody gave me cash and I was putting it to work, there's certain companies in this portfolio that I would add to.
00:47:55.360 --> 00:48:00.400
There's certain companies that I would not add to, and I'm not going to say who they are.
00:48:00.719 --> 00:48:11.039
Um, but I'm not really looking to try to hit the bid and sell them down tactically, if that makes sense.
00:48:11.280 --> 00:48:15.199
And again, it's very different than I would manage any of the other funds that I manage.
00:48:16.000 --> 00:48:24.559
Yeah, it's a different mindset with the liquidity parameters that you have to deal with, which are yeah, just way different um in terms of your ability to act actively manage some of these names.
00:48:24.719 --> 00:48:28.639
I know, Dan, uh you do run a business and you've got about 12 minutes left in the trading day.
00:48:28.719 --> 00:48:30.159
Do you need to uh jump here?
00:48:31.119 --> 00:48:32.079
No, I'm good.
00:48:33.599 --> 00:48:34.800
Why don't we finish up?
00:48:34.880 --> 00:48:36.559
Um, take just a couple of minutes, I think.
00:48:36.639 --> 00:48:39.199
Um, and Morgan, since you're back, do you want to lead this discussion?
00:48:39.280 --> 00:48:42.800
Just kind of maybe some of the more specifics about the counterparty, the counterparty risk.
00:48:42.880 --> 00:48:46.719
I think we covered it, but these are a couple of interesting elements that are important for investors.
00:48:46.800 --> 00:48:56.880
And the big one for me, um, you know, Morgan, just in terms of you know framing the discussion is understanding that counterparty risk, because when you are investing, you had this in PSDN, Morgan, and we had some candid conversations about it.
00:48:57.039 --> 00:49:01.119
You should understand the whole, you know, Scott Grossman, know what you own trademark.
00:49:01.440 --> 00:49:11.440
Um, you should, in this case, know what you own in terms of the expertise of Dan, the you know, the you know the infrastructure of advisor shares, but also in this case, I think it's unique.
00:49:11.519 --> 00:49:12.559
We do have that counterparty in there.
00:49:12.639 --> 00:49:14.960
So maybe you could flesh that out a bit, Morgan.
00:49:16.000 --> 00:49:16.320
Sure.
00:49:16.480 --> 00:49:20.480
Yeah, I mean, I think it's well, I mean, you talked to the we covered the why earlier.
00:49:20.639 --> 00:49:22.639
Obviously, there's the the benefit of the why.
00:49:22.719 --> 00:49:33.760
And so, you know, maybe a question for you, Dan, is because it's been a few years obviously since we've um were in the space, but how has the counterparty landscape changed?
00:49:33.920 --> 00:49:39.199
Have you seen more come in that um, you know, to your point, I think you said you have five now.
00:49:39.519 --> 00:49:51.519
Um, so you know, like is there a way you look at it from how much exposure you're putting with various groups depending on you know their balance sheets, like how how much do you have to do uh like work at this point?
00:49:51.679 --> 00:49:55.119
Um, I mean you guys are still managing it's around a billion, right?
00:49:55.199 --> 00:49:56.400
In MSOS.
00:49:56.880 --> 00:49:57.199
Yeah.
00:49:57.840 --> 00:50:04.159
Uh you know, it's interesting, Morgan, that the um the landscape is is constantly changing.
00:50:04.320 --> 00:50:08.960
And years ago, we used to we started with total return swaps with with Cowan.
00:50:09.119 --> 00:50:13.679
And Cowan was very deep in the cannabis space, doing lots of things.
00:50:14.000 --> 00:50:18.239
And um they were a very good partner uh underwriting total return swaps.
00:50:18.400 --> 00:50:35.360
And um, for people that don't know, um these are big Wall Street firms that have big risk departments and lawyers, and um they don't want risk, and so they own stock for all the total return swaps that they're owning.
00:50:35.599 --> 00:50:46.559
Um but then they got acquired by TD Bank and got out of the business, and we uh moved all of our total return swaps to Nomura, who gave us a very good deal.
00:50:46.719 --> 00:50:55.440
And I don't mind name-dropping them because they're in our annual report, our semi-annual reports, it's public information, and and they do filings on the stocks that they own.
00:50:55.760 --> 00:51:07.760
But um we use a word called capacity uh around total return swaps, and um Nomura doesn't want to own 10% of CuraLeaf.
00:51:07.920 --> 00:51:08.880
Well, that'd be really hard to do.
00:51:08.960 --> 00:51:10.559
Cura Leaf has a lot of outstanding shares.
00:51:10.639 --> 00:51:14.960
They don't want to own 10% of TrueLeaf, but don't want to own 10%, they don't want to own 5%.
00:51:15.760 --> 00:51:22.079
So they have limits on how much of a company, any company that they want to own.
00:51:22.320 --> 00:51:39.280
Um, they also serve other customers, other customers that don't have anything to do with cannabis, and they only might have certain amounts of balance sheet available to buy a bunch of stocks to back up all the swaps that uh they're writing for people.
00:51:39.679 --> 00:51:46.639
So we also don't want to have what you guys have both mentioned of the word counterparty risk.
00:51:46.880 --> 00:51:52.800
So um we don't want anybody to turn into Lehman Brothers uh for people that are old enough to know what that is.
00:51:53.039 --> 00:51:55.760
I was gonna say I don't know how much we're on it for that.
00:51:55.920 --> 00:51:58.719
So it feels like yesterday over here, man.
00:51:58.880 --> 00:51:59.519
Oh, yeah.
00:51:59.760 --> 00:52:13.039
So so um we have uh total return swaps with National Bank of Canada, we have total return swaps with Clear Street, we have uh total return swaps with Marex, we have total return swaps with Canor Fitzgerald.
00:52:13.679 --> 00:52:21.280
Um, and the amount of companies that they want are willing to own uh changes over time.
00:52:21.440 --> 00:52:26.159
Sometime their balance sheet and availability changes over time.
00:52:26.480 --> 00:52:40.480
Um, how much money they have in with other fund customers and other cannabis or non-cannabis uh products changes, and therefore the rates that we pay also are negotiable and change.
00:52:40.639 --> 00:52:44.000
Um just pausing there for a second.
00:52:44.079 --> 00:52:49.679
So, like obviously the chips have been just getting smoked after an epic rally.
00:52:50.079 --> 00:53:01.519
Like, do is there downstream effects when there are these other like macro movements where billions and billions of dollars are being you know either going up or down, or is that their willingness to you know their balance sheet in cannabis?
00:53:01.599 --> 00:53:02.639
And like, you know.
00:53:03.360 --> 00:53:07.199
Um and you know, it's not a day-to-day thing in the short-term thing.
00:53:07.360 --> 00:53:15.519
So no, I I haven't heard of any uh direct pain from uh what's happened with uh with chips and semiconductors lately.
00:53:15.760 --> 00:53:20.559
Um, but again, all all of it are are moving parts.
00:53:20.719 --> 00:53:28.480
And um that's yeah, I was just trying to give like some clarity to people like what what moving parts would like that you're feeling the downstream on.
00:53:28.880 --> 00:53:29.840
You know, it's funny.
00:53:29.920 --> 00:53:42.719
Uh um a big thing was there's a certain state in the United States that their cannabis commission wanted to view things differently than any other state did.
00:53:42.960 --> 00:53:49.280
Um, and for people that are involved in the cannabis space, yeah, yeah, that's frustrating that all the states want to manage things differently.
00:53:49.599 --> 00:54:06.880
Well, they wanted to say if any company owned five percent of a cannabis company operating in that state, they had to have a representative license with the state on the ground in that state.
00:54:07.360 --> 00:54:11.519
Um, that's a little bit you know, getting in the weeds of this thing, pun intended.
00:54:11.679 --> 00:54:33.440
But um so companies like Nomura and National Bank of Canada and Merx and Canter Fitzgerald says, Oh my god, no, there's no way we can own 5% of a cannabis company because we're not going to um fulfill that particular state's wishes.
00:54:34.000 --> 00:54:36.800
So that's why I need to print things out.
00:54:37.119 --> 00:54:38.960
Now, here's an interesting thing though.
00:54:39.199 --> 00:54:48.800
I mentioned earlier that we were able to take true leave total return swap and turn a lot of it into um stock.
00:54:49.199 --> 00:54:54.960
I didn't have to own as much swap anymore because I'm able to custody at Bank of New York Mellon, which is awesome.
00:54:55.280 --> 00:55:00.480
So, do you know which swaps I sold down and turned into stock?
00:55:00.800 --> 00:55:02.480
The most expensive ones.
00:55:02.719 --> 00:55:12.800
Because I pay a different rate at National Bank of Canada as compared to Nomura, as compared to Mereks, as compared to Canada Fitzgerald.
00:55:13.119 --> 00:55:14.480
They have different rates.
00:55:14.719 --> 00:55:20.159
I um I keep the biggest balances with the cheapest ones.
00:55:20.320 --> 00:55:23.840
And if I need to trim, I trim the most expensive ones.
00:55:24.079 --> 00:55:24.639
Simple as that.
00:55:24.880 --> 00:55:26.960
Do the cheapest ones of higher credit risk, though, Dan?
00:55:27.039 --> 00:55:29.679
Are those are those credit ratings similar across the board?
00:55:30.239 --> 00:55:32.159
I think they're very similar across the board.
00:55:32.239 --> 00:55:39.599
And um the companies I'm I'm dealing with, uh, we believe to all be uh rock solid and and safe.
00:55:39.920 --> 00:55:46.960
And um, you know, another thing is that I'm not dealing with exotic or highly leveraged swaps.
00:55:47.039 --> 00:56:01.920
Uh, we happen to know that those companies own stock for every bit of uh swap that they own, which is also why I was able to close swap on true leave and buy an equal amount of you know tens of millions of shares of stock and move it to the fund.
00:56:02.320 --> 00:56:04.400
So it's all it's always an issue.
00:56:04.480 --> 00:56:06.320
You know, what are what are the credit ratings?
00:56:06.400 --> 00:56:08.960
You know, what what is the counterparty risk there?
00:56:09.280 --> 00:56:14.880
But um the rates are not directly tied to that.
00:56:15.119 --> 00:56:21.039
It's more tied to their balance sheet availability and what they're willing to give us.
00:56:21.840 --> 00:56:37.679
So so it's a good point on the um, I think you're kind of mentioning this a bit with like how much they want to have exposure with the swaps, but like do you now that companies are starting to up list, like using TrueLeave or maybe Glasshouse as an example, and you're owning them directly.
00:56:38.159 --> 00:56:50.880
Does BNY or is this like a new thing you're now having to chase where they're saying we only want you like you can only own so much of this company directly, and then you'd still want to use some swaps because you don't want to go over a certain direct ownership threshold?
00:56:50.960 --> 00:57:02.880
Or is that and I don't know if that's too technical of a discussion right now, but I just was you know kind of curious, like what that's actually an excellent um question, Morgan, that I haven't had come up directly.
00:57:03.119 --> 00:57:14.000
And my theory is that it might be for um custody versus ownership on the balance sheet.
00:57:14.719 --> 00:57:25.119
So BNY Mellon is one of the largest custody banks in the world, they are custodying that stock for our fund.
00:57:25.519 --> 00:57:44.000
Our fund owns it and files filings that we own it, as compared to when a swap counterparty is owning the stock just on their own books to back up the risk of the total return swap.
00:57:44.320 --> 00:57:46.800
I think that might be the different animal.
00:57:48.480 --> 00:57:50.000
Yeah, okay.
00:57:50.320 --> 00:57:53.519
Yeah, because I was like kind of yeah, nice to Noah chimed in as well.
00:57:53.599 --> 00:57:58.800
But um records, yeah, yeah, yeah.
00:57:59.360 --> 00:58:00.079
Interesting.
00:58:00.400 --> 00:58:12.079
And and Dan, like when investors are looking at this in terms of the return, and just to reiterate, but not to be hopefully too basic to people, but if GTI returns 10% in a year, you own it via the total return swap.
00:58:12.239 --> 00:58:15.039
Back in my days, Dad, those are like LIBOR plus a spread.
00:58:15.119 --> 00:58:18.159
I think I was at LIBOR plus a point or point and a half back in the day.
00:58:18.320 --> 00:58:22.880
Is that still kind of how these are prices, some sort of floating interest rate plus a spread uh above that?
00:58:23.280 --> 00:58:23.760
100%.
00:58:24.159 --> 00:58:25.920
Yeah, it's a it's a real good point.
00:58:26.079 --> 00:58:30.559
Um, and it's it's public information, uh, if people know where to look anyway.
00:58:30.800 --> 00:58:40.719
Um LIBOR's gone away, and uh a couple of the companies call it SOFR, and some of the companies call it OBFR, which is overnight bank rate plus a spread.
00:58:40.880 --> 00:58:44.159
So it's we pay um for the cost of the swap.
00:58:44.320 --> 00:58:45.119
They're not free.
00:58:45.280 --> 00:58:49.440
We pay overnight bank rate plus a small spread.
00:58:49.679 --> 00:58:52.559
But on the other hand, this is an important thing.
00:58:53.119 --> 00:59:01.840
Um, the fund has hundreds of millions of dollars in cash earning overnight bank rates.
00:59:02.559 --> 00:59:06.480
So we're earning a ton of interest, we're also paying for the swaps.
00:59:06.639 --> 00:59:09.199
There is a spread, they're not free.
00:59:09.599 --> 00:59:13.039
Um, but uh it's not huge.
00:59:13.920 --> 00:59:18.800
So just to flesh this out a little bit, so far I looked is at what 3.65 right now.
00:59:18.960 --> 00:59:21.920
I don't know what Dan's rates rates are, point, point and a half.
00:59:22.000 --> 00:59:29.280
I don't know exactly what it is, but probably pushing five all in on that cost, but offset and some interest against the cash over there.
00:59:29.440 --> 00:59:34.559
So I don't know exactly where that works out, but somewhere between zero and five for sure, Dan.
00:59:34.639 --> 00:59:35.840
Does that sound like a ballpark range?
00:59:35.920 --> 00:59:38.159
Probably closer to net three or four.
00:59:39.119 --> 00:59:40.960
Yeah, yeah, you're in the ballpark.
00:59:41.119 --> 00:59:46.480
And again, um, you know, one counterparty charges one rate and another counterparty charges a different rate.
00:59:46.559 --> 00:59:52.239
And I try to keep uh larger balances in in the uh the lower rates.
00:59:52.480 --> 01:00:12.000
And I also want to keep all those doors open because knock on wood, I'm hoping for hundreds of millions of dollars of inflows again to this fund when uh when things change and the outside investing world takes sight of cannabis investing once again.
01:00:12.320 --> 01:00:18.559
So I'm keeping my doors open on the swap capacity, we call it.
01:00:18.800 --> 01:00:20.960
But yeah, you're in the ballpark at the cost.
01:00:21.119 --> 01:00:32.320
And again, hey, for anybody out there, mutual funds, funds inside your 401k, ETFs, all of them have fees and expense ratios.
01:00:32.559 --> 01:00:38.400
If somebody thinks they want to um, you know, just buy stocks on their own, yeah, knock yourselves out.
01:00:38.480 --> 01:00:39.599
Good luck with that.
01:00:39.840 --> 01:00:46.159
But uh the beauty of the ETF is that it is uh one fund, it's one purchase.
01:00:46.320 --> 01:00:50.719
You're you're not gonna get a capital gains distribution at the end of the year, it's tax efficient.
01:00:50.960 --> 01:00:54.639
And um, but yeah, there's fees, it's not free.
01:00:54.800 --> 01:00:57.679
Yeah, there's uh there's pros and cons there.
01:00:58.320 --> 01:01:02.559
There's a cost to the financial engineer, financial ear engineering you were doing.
01:01:02.880 --> 01:01:04.320
Yeah, and you know what?
01:01:04.400 --> 01:01:09.280
Um the thing about um if and when we hope all these U.S.
01:01:09.360 --> 01:01:20.079
cannabis companies can get up listed, I am gonna convert as much darn percentage of that as I can into non-swap, into direct stock.
01:01:20.239 --> 01:01:23.760
But I got to remind people, I'm still gonna use total return swaps.
01:01:23.920 --> 01:01:31.119
And the reason is we have this fund very purposely, super top heavy in the top holdings.
01:01:31.360 --> 01:01:37.760
And if you look at a regular mutual fund or regular ETF, it is not that top heavy.
01:01:37.840 --> 01:01:46.079
That is not allowed under the Internal Revenue Code and the 1940 Act diversification concentration rules.
01:01:46.400 --> 01:01:57.280
So that's a big part of the reason that I haven't converted all of True Leave to being holding it directly, because I fully expect to be doing the same thing with CuraLeaf.
01:01:57.519 --> 01:02:00.719
Well, I've already done a lot of it with Cura Leave because they're listed on the TSX.
01:02:00.800 --> 01:02:01.760
So I misspoke.
01:02:01.920 --> 01:02:17.039
I fully expect to be doing it the same thing with GTI and Verano and Cresco uh in the the near future because of I'm so concentrated and I gotta meet the diversification concentration rules.
01:02:17.360 --> 01:02:21.199
So is that how like the single stock ETFs they're just using a swap, right?
01:02:21.280 --> 01:02:22.159
Because they 100%.
01:02:22.960 --> 01:02:23.280
Yeah.
01:02:23.519 --> 01:02:30.960
So it's like anyone that's buying for whatever reason a single stock ETF instead of just buying the stock, they're that's that's their get-around.
01:02:31.679 --> 01:02:37.840
Yeah, back in the old days, we used to tell people because people would come to us and want to develop an ETF, and they'd say, we want to own 10 stocks.
01:02:37.920 --> 01:02:39.440
And we'd say, No, you can't do that.
01:02:39.599 --> 01:02:44.960
You have to own more stocks than that, or you're not gonna be you're not gonna fit in the 1940 Act rules.
01:02:45.119 --> 01:02:50.639
Um, now there are single stock funds and there's super concentrated funds.
01:02:50.800 --> 01:02:52.880
But yeah, they're using total return swaps.
01:02:52.960 --> 01:02:59.440
Total return swaps are very normal, very common, and there's trillions of dollars in it.
01:02:59.679 --> 01:03:01.760
It's not unique to cannabis investing.
01:03:01.920 --> 01:03:03.840
Um, people need to understand that.
01:03:04.159 --> 01:03:04.800
Yeah.
01:03:06.400 --> 01:03:07.519
About at the hour here, guys.
01:03:07.599 --> 01:03:07.920
Anything else?
01:03:08.000 --> 01:03:09.280
Uh Dan, it's been a great discussion.
01:03:09.360 --> 01:03:11.920
Anything else uh you want to touch on before we let you jump?
01:03:12.239 --> 01:03:13.760
Uh, there's lots of things I want to do.
01:03:15.440 --> 01:03:16.800
No, it's been great, guys.
01:03:16.880 --> 01:03:21.840
I I hope this is good education for people, is is the main point of doing this.
01:03:22.000 --> 01:03:27.280
Um, I think you should know what you own, understand what you own.
01:03:27.679 --> 01:03:32.880
And um we all hope for better times of cannabis investing.
01:03:33.119 --> 01:03:33.760
Yeah.
01:03:34.559 --> 01:03:35.119
We're due.
01:03:35.360 --> 01:03:36.480
We're overdue, guys.
01:03:36.639 --> 01:03:40.000
Well, we'll be closing out by saying thank you to FlowHub for making today's show possible.
01:03:40.079 --> 01:03:47.599
Whether you have one dispensary or 166 like Kira Leaf, who happens to be on the TSX, having the right technology is more important than ever.
01:03:47.840 --> 01:03:51.039
That's why so many top retailers choose FlowHub.
01:03:51.199 --> 01:03:56.559
What you need to do if you have a dispensary is go to FlowHub.com, book a demo today, and see what is possible.
01:03:56.719 --> 01:03:59.679
So thank you to FlowHub for supporting today's show.
01:04:00.079 --> 01:04:02.480
Morgan, I appreciate you.
01:04:02.639 --> 01:04:04.559
I know you had some tactical struggles today.
01:04:04.719 --> 01:04:05.840
Don't beat yourself up.
01:04:06.000 --> 01:04:07.039
We all have bad days.
01:04:07.199 --> 01:04:08.239
You made it back in the end.
01:04:08.320 --> 01:04:10.079
I'm proud of your perseverance, Morgan.
01:04:10.559 --> 01:04:12.320
That's what we do in cannabis.
01:04:12.719 --> 01:04:13.199
Exactly.
01:04:13.920 --> 01:04:15.280
That's kind of a cannabis experience.
01:04:15.360 --> 01:04:18.000
Yeah, you took a bit of a beating today, but you started to come back at the end.
01:04:18.079 --> 01:04:18.960
So that was nice work.
01:04:19.360 --> 01:04:21.360
Dan, really, really appreciate uh you coming on.
01:04:21.440 --> 01:04:25.360
It's uh we should have had you on sooner, and I hope uh we'll see you back again here soon.
01:04:27.519 --> 01:04:29.280
So thank you to everyone listening.
01:04:29.519 --> 01:04:32.400
Again, if you're on uh YouTube, that's been a fantastic.
01:04:32.559 --> 01:04:39.119
Hit that uh thumbs up button, like, subscribe, even hit that bell so you know when new know when the uh new shows will come out.
01:04:39.360 --> 01:04:40.800
We're gonna be off for about two weeks.
01:04:40.960 --> 01:04:48.480
I've got earnings next week and I can't deal with additional stress, and then I'm finally taking vacation the following week, but we're still good for two shows in August.
01:04:48.559 --> 01:04:50.800
We'll just cram those into the back half of the month.
01:04:50.960 --> 01:04:54.800
So look for those sometime this the third and fourth week of August.
01:04:55.119 --> 01:04:55.920
That's it, guys.
01:04:56.000 --> 01:04:56.559
I've had it.
01:04:56.639 --> 01:04:57.199
We're out of here.
01:04:57.280 --> 01:05:00.480
Uh the Views Expresses podcasts are provided for informational purposes only.
01:05:00.639 --> 01:05:03.440
Nothing we said should be considered research door recommendation.
01:05:03.760 --> 01:05:05.360
All investing involves risk.
01:05:05.519 --> 01:05:10.559
You know that you're investing in cannabis, uh, including the loss of principle.
